Reward accounts and tax

VXman

Does money gained from Reward accounts like Halifax reward, Nat west reward have to be factored into the £1000 interest allowance for tax purposes?  What about Chip Bonus?

zagfles

It's a complicated area that the banks are usually incredibly unhelpful with. I don't think "rewards" usually count as interest, they are usually either taxable "annual payments" or tax free. If they are deemed as "cashback" then they are usually tax free as they count as a discount on purchases.

So for instance, AIUI, if you get the Halifax reward for spending £500 on your debit card, then that is tax free, but if you get it for leaving £5000 in your account, it's an "annual payment" which is taxable (but not as interest, so can't use savings allowance), and paid net, you actually get £6.25 gross with 20% tax taken off! If you pay higher rate tax you have to declare it and pay additional tax.

That's my understanding anyway, don't rely on it, I'm no expert!

talexuser

A good question. What about Raisin bonus? This is not interest from the bank Raisin sends your money to but money from Raisin so can't be counted as interest, and is not an annual payment but a one off.

cx6

https://www.moneysavingexpert.com/news/2016/07/halifax-barclays-or-co-op-bank-customer-you-may-need-to-pay-tax-on-your-rewards/

zagfles

cx6 said:

https://www.moneysavingexpert.com/news/2016/07/halifax-barclays-or-co-op-bank-customer-you-may-need-to-pay-tax-on-your-rewards/

That's from 2016. The Halifax Reward is now completely different so the Halifax section at least no longer applies. Not sure about the others.

VXman

So Halifax is ok for standard tax payers as it's already taxed.

Nat West us paid in Reward points which can be exchanged for cash credit or upgraded for shopping vouchers etc

Does this make it different?

I'm asking as HMRC randomly decided I was earning £1300 in interest and changed my tax code. I contacted them and they are asking for proof of all my interest income. I have a lot less now than previously as I have given money to my son for a house purchase and invested some. I estimate actual interest to be around £300. Tempted to ignore the reward accounts as they won't change the figure much anyway 

However, when you have loads of current accounts, and a variety of savings it's blooming complicated. Wish they'd concentrate on the real tax evaders!

ColdIron

As zagfles says, it depends. You will need to check each of them out but the information is hard to find

masonic

talexuser said:

A good question. What about Raisin bonus? This is not interest from the bank Raisin sends your money to but money from Raisin so can't be counted as interest, and is not an annual payment but a one off.

One-off incentives are generally not taxable.

VXman said:

So Halifax is ok for standard tax payers as it's already taxed.

It depends on which reward you are signed up for, the £5 for £500 debit card spend is treated as cashback and is not therefore taxable, with no tax deducted at source. The £5 for keeping £5k in the account is an annual payment and is taxed at source at the basic rate, as annual payments should be.

VXman said:

Nat West us paid in Reward points which can be exchanged for cash credit or upgraded for shopping vouchers etc

It depends on how you earn the points, not the fact that they are points or can be exchanged for cash credit etc. Presumably the Reward points are earned by spending, so they would be treated as a cashback incentive.

VXman

masonic said:

It depends on how you earn the points, not the fact that they are points or can be exchanged for cash credit etc. Presumably the Reward points are earned by spending, so they would be treated as a cashback incentive.

You get £1's worth for using the app once in a month, £2 for each direct debit (up to £4 max) But you pay £5 fee. So benefit is £3. To complicate things further it is all lumped together with cash back (points) for credit card spending. Sort that one out!!!

masonic

VXman said:

masonic said:

It depends on how you earn the points, not the fact that they are points or can be exchanged for cash credit etc. Presumably the Reward points are earned by spending, so they would be treated as a cashback incentive.

You get £1's worth for using the app once in a month, £2 for each direct debit (up to £4 max) But you pay £5 fee. So benefit is £3. To complicate things further it is all lumped together with cash back (points) for credit card spending. Sort that one out!!!

The "£4 back in Rewards for paying 2 or more Direct Debits from your reward account – 2 of those Direct Debits need to be at least £2 each" would be treated as cashback - a discount on the DDs, and the cashback on spending is obviously also cashback. That only leaves the £1 for logging in, this could be treated as a discount to the £2 monthly fee. Only Natwest can confirm if this is actually the case, but it seems likely to be. Otherwise that £1 element would be taxable as an annual payment (meaning, like the Coop, part of the rewards are taxable, and part are not).