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

colsten

miller wrote: »

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%

Which would, of course, be totally unfair to those account holders who actually use the account for its intended purpose. Aside from the maths not working.

zolablue25

eskbanker wrote: »

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?

Yes, does seem a little late to the party.

miller

colsten wrote: »

Which would, of course, be totally unfair to those account holders who actually use the account for its intended purpose. Aside from the maths not working.

You could still have the condition about 2 direct debits etc, monthly funding to get the interest. How does the maths not work? 500% a month on £1 is a fiver a month is it not?

masonic

miller wrote: »

You could still have the condition about 2 direct debits etc, monthly funding to get the interest. How does the maths not work? 500% a month on £1 is a fiver a month is it not?

What is the interest rate when you keep your balance at £0.00?

miller

masonic wrote: »

What is the interest rate when you keep your balance at £0.00?

It is 500%, but of course you would earn 0 in that corner case; you have got to stay in credit currently to earn it anyway.

People really shouldn't have to be concerned about annual payments/miscellaneous payments etc. IMO and the finer points of the tax system for such trivial amounts. Changing the system to reclassify the payments is not beyond the scope of the banking industry.

YorkshireBoy

miller wrote: »

It is 500%, but of course you would earn 0 in that corner case; you have got to stay in credit currently to earn it anyway.

The actual wording is...

Have not had a debit balance (planned or unplanned) on your Reward Current Account by the end of any day during the calendar month.

...so maintaining a zero balance is perfectly acceptable in terms of getting the Reward.

Archi_Bald

YorkshireBoy wrote: »

so maintaining a zero balance is perfectly acceptable in terms of getting the Reward.

Correct. The balance in my Reward accounts is generally zero, apart from the days when the DDs go out. The rewards have been paid without fail for years.

uptdale

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.

I'm not sure that is right. BIM100155 actually says:

Expenses are allowable in computing income within the sweep-up charge, but there is only limited legislation on exactly what expenses are deductible. ....
In practice you should follow the rules governing trade profits, so far as they are applicable

It is debatable whether the rules governing trade profits are applicable here, but if they are applicable the "wholly and exclusive" test has to be applied from the point of view of the purpose of the expenditure. An incidental benefit does not prevent an expense being wholly and exclusively incurred if the incidental benefit is not a purpose of the expenditure. Certainly I - and many others - would not pay the £3 a month in order to access the cashback on expenditure, which is readily available from sites such as Topcashbck or Quidco without paying anything. I pay the fee only to get the £7 a month reward. So do many people who followed the original advice here:

http://www.moneysavingexpert.com/news/banking/2015/04/barclays-launches-reward-scheme-for-current-account-users-but-other-banks-beat-it

The article was headed "Got a Barclays current account? Here's how to get £48 per year." Not £84 a year. It's a net £4 a month, and that is how most people look at it. I don't think anyone would pay £36 a year to access the cashback, which is of doubtful value. I take the view that it is "incidental or personal benefit.... not part of the purpose in incurring the expense to secure such benefit." (see BIM37400).

I agree that the £7 a month is not an annual payment. In fact Barclays must have looked at that before deciding not to deduct tax at source. It's pretty poor that Barclays then decide to wash their hands of the issue, creating more work for customers, tax advisers and HMRC staff.

The tax manuals say at SAIM8020 under "Customer 'rewards' and cashback" that ‘Cashbacks’ can present difficult issues, and HMRC staff should consult CTIAA (Financial Products Team) in cases of doubt. So it's not surprising that most tax officers would not know the answer.

In the absence of guidance from either HMRC or Barclays, it seems to me essential to disclose how you have treated the payments in the Additional Information box on your tax return.

jumperabv3

Yes, Barclays' £7 reward is only £4 reward because you pay £3 fee (£7 - £3 = £4.00 net reward).

It's £48/year, not a lot, but I'd just tell my accountant to add it to my self assessment amount as misc or however he wants to call it and that's the end of it.