Halifax reward current account income tax deduction

DannyGirl

I've just spent a fruitless hour on the phone to Halifax bank. I asked why, although I do not pay income tax, they deduct this at source before paying me my monthly reward. (I know it's not a huge amount, but I just wanted to know, and to request that they don't deduct it in future). After lots of waiting around for various banking colleagues to be consulted, the answer seems to be because it's not interest on savings, and it's up to me to reclaim the tax from HMRC if I want it.
Can anybody shed any light on this? Why would a bank be obliged to pay income tax on behalf of a non-tax-paying customer in any circumstance?

BakingC

I imagine it is a case of the them not wanting to spend thousands on implementing a system that could make the reward payments on a case by case basis of individuals tax circumstances. They have probably discussed with HMRC and determined most of their reward current account holders pay basic tax so if they pay it already taking into account the tax it solves thousands of people having to file claims to pay an extra tiny amount of tax and then the minority who do not pay tax or pay higher tax have to pay / claim back the extra amount.

Tom99

What amount do Halifax actually hand over to HMRC, is it 50p for every £2 reward payment?
Or have they negotiated a lower amount on the basis that most of their account holders are below the £1,000 savings allowance anyway.

xylophone

https://www.litrg.org.uk/tax-guides/other-tax-issues/savings-and-tax#toc-my-bank-account-pays-rewards-does-the-personal-savings-allowance-apply-to-them-

If the reward takes the form of a cash reward (not related to the account balance), for say depositing a certain amount per month, this is not savings income, but is probably an ‘annual payment’ (applicable even if reward is paid monthly). Banks must deduct tax at 20% before paying you the cash reward, and the gross amount of the cash reward is taxable. Since annual payments are not savings income, these types of reward are not eligible for the PSA (or the starting rate for savings). If you are not liable to tax you can reclaim any tax deducted by completing an R40 form or on your Self Assessment tax return. If you are a higher-rate taxpayer you would need to pay the extra amount to HMRC, for example, via a PAYE coding adjustment or through your tax return.

https://www.halifax.co.uk/bankaccounts/current-accounts/reward-current-account/#collapse1-1499459832070

When we pay you the £2 Reward we are required by legislation to pay tax of £0.50 to HMRC on your behalf, so the gross reward is £2.50. The tax paid is 20% (current basic rate of income tax) of the gross amount. If you are a higher rate or additional rate taxpayer it is your responsibility to pay any additional tax due.

IanManc

Tom99 wrote: »

What amount do Halifax actually hand over to HMRC, is it 50p for every £2 reward payment?
Or have they negotiated a lower amount on the basis that most of their account holders are below the £1,000 savings allowance anyway.

The Halifax Reward isn't interest on savings so has nothing to do with the "£1000 savings allowance".

Terry_Towelling

In theory, DannyGirl you can reclaim the tax from HMRC. I am considering doing this on mine. Take care not to incur more cost reclaiming it than it is actually worth.

Things would be much easier if Banks were required to tell HMRC on whose behalves the tax payments were being made, then it would be showing in your personal income tax record and a refund could be automatic. Sadly, that doesn't happen.

xylophone

It would be better if Halifax reclassified the reward as "cashback" a la Barclays?

https://www.moneysavingexpert.com/news/2016/11/barclays-blue-rewards-are-now-tax-free---act-now-to-get-a-free-55-in-a-year/

youngretired

You need to claim it back from HMRC. I've been doing it for years. You have to complete a R40 and put it under other income. When you complete it you need to explain what it is and give the account details that it is for.

pochisoldi

For those of you doing Self Assessment and wondering where to put the payment you enter the amount paid and the tax deducted in the "Other Income not included in supplementary pages".

Put the gross amount in the box under
"Other taxable income - before expenses and tax taken off: (Optional)"

Put the tax deducted in the box under
"Tax taken off income: (Optional)"
Then put the words "Halifax Rewards bank account payments" in the text box.

pinkdalek

I wish I had £10 for every thread started on this mundane query.

It's not interest and it is up to the customer to reclaim the tax, got a problem with it take it up with the HMRC.

Terry_Towelling

pinkdalek wrote: »

I wish I had £10 for every thread started on this mundane query.

Would that be gross or net?