Bank with Barclays, Halifax or Co-op? You may need to pay tax on your rewards

me_and

eskbanker wrote: »

No idea why MSE considers this to be news many months after it was debated to death on numerous threads about how PSA only applies to interest rather than cashback/rewards that have always been taxable....

Edit: it was established that these non-interest payments wouldn't be covered by PSA five months ago in https://forums.moneysavingexpert.com/discussion/5407456

That's great for those of us who read the forums, but there are plenty of folk who read MSE articles but don't bother checking the forums. Personally, I'm glad to have this information as part of official, approved by the MSE editorial team, advice rather than just the info in the forums.

King_Of_Fools wrote: »

It would be helpful to add to the article where on the tax form these annual payments should be declared.

For a 2015/16 tax return, if you're filing online, on the "Tailor your return" pages you need to select "Yes" for "other UK income", then on the "Other UK income" pages tick the "Any other income" box, then fill in the income on the following page.

If you're filling in a paper tax return for 2015/16, you fill in boxes 17, 19 and 21 on page TR3 of the main tax return form (SA100).

For Halifax's £5 monthly reward, for example, multiply the number of months you received it by £6.25 for the "before expenses and tax" sum (so 12×£6.25=£75 if you received it every month for a year), and the number of months times £1.25 for the tax taken off (so 12×£1.25=£15 if you received it every month for a year). For the description, just use something like "Annual payments for holding a Halifax Reward current account".

Historically, I suspect the vast majority of people will have been filling in these payments as "interest", and while that's technically incorrect, for most people it will have made no difference to tax due, so nobody has cared.* Hopefully now the distinction makes a difference to tax due, HMRC will make the forms clearer for the 2016/17 tax year.

(*As was pointed out to me elsewhere, people who mistakenly thought the lower "starting rate for savings" tax rate applied to these annual payments may have paid an incorrect amount of tax, but even then I suspect the amounts are sufficiently small that nobody is going to go to the bother of worrying about them.)

[Obvious disclaimer: I am not an accountant, this is my opinion as an interested lay person]

eskbanker

me_and wrote: »

That's great for those of us who read the forums, but there are plenty of folk who read MSE articles but don't bother checking the forums. Personally, I'm glad to have this information as part of official, approved by the MSE editorial team, advice rather than just the info in the forums.

Yes, fair point about editorial versus forums, although personally wouldn't take too much notice of official approved status, they're just journalists when all is said and done, so the only genuinely official answer comes (or should come eventually!) from HMRC.

My issue was more about the timing, i.e. why are they putting this out in July when the question was being asked (and answered) in February ahead of the introduction of PSA in April?

Lingua

oldagetraveller wrote: »

I'm afraid Faye needs to brush up on her grammar too.

Had a quick peruse over the post so may have missed something, but what's the grammar mistake?

Wizard_of_Id

I would like to know why the Bank of Scotland reward current account was not included by the OP in her list

olivetti

pochisoldi wrote: »

I can't see how the whole £7 can be taxable.
Surely only the "net profit" is taxable.

And even more confusing is the way that Barclays throw their hands in the air and tell their customers that it is their problem. HMRC aren't going to tell taxpayers about specific cases - that's why it's called self assessment.

I can see that Barclays are going to end up in hot water at some point because "annual payments" should have tax deducted at source (same rule now as before), and a certificate of tax deduction provided to the customer. This provides a flag to low income customers - "Might be able to reclaim the tax" or higher rate taxpayers - "Have to declare this". Instead they get nothing and a potential tax bill + interest when HMRC catches up with them.

It is not an annual payment as for it to be classed as one it needs to be "pure income profit" i.e. have no costs associated with gaining that income. This is the case with the Halifax reward, but because you have to pay £3 to get £7 it is taxable as miscellaneous income on the net amount.

me_and

olivetti wrote: »

It is not an annual payment as for it to be classed as one it needs to be "pure income profit" i.e. have no costs associated with gaining that income. This is the case with the Halifax reward, but because you have to pay £3 to get £7 it is taxable as miscellaneous income on the net amount.

I believe that's incorrect, you have to pay tax on the whole £7 and cannot deduct the £3 fee as an allowable expense.

The £7 reward is classed as "miscellaneous income", so per HMRC's guidance in BIM80155, "the rules governing Trading Income should normally be followed" with regard to what is and isn't an allowable expense.

As I understand it, that means the expense (i.e. the £3 monthly fee) must have been incurred "wholly and exclusively" to gain the income for it to be an allowable expense. That's not the case for the Barclays Blue Rewards account -- that fee gets you access to other benefits as well, notably the untaxable cashback -- so the fee isn't deductible from the income and you need to pay tax on the entire £7 reward.

ceredigion

I am not an accountant and won't pretend to fully understand, However I employ one to sort out my business affairs and he put the full £7 reward from Barclays in as taxable income.

Dird

RedDwarf82 wrote: »

Co-Op and Halifax, sure. But when did the Barclays thing became so clear???

This article doesn't make it clear at all. "If you're a taxpayer - you may need to declare it." --- !!!!!! this that? Should people just flip a coin to decide?
Presumably OP has to write so many articles per month & was pushed for time

xylophone

http://www.telegraph.co.uk/personal-banking/current-accounts/the-barclays-loyalty-reward-thats-half-of-what-was-promised/

With regard to where to put the information on the SA form,

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/503309/sa100_2016.pdf

box 17 seems appropriate.

miller

The banks could help here by redefining how these payments are made.

e.g. Halifax Reward Account Interest Rates:
balance / monthly gross interest
up to £1: 500%
balances over £1: 0%

They wouldn't have to give HMRC £1.25 either as it would then fall under the PSA and be the customers' problem.