Are bank rewards (eg NatWest £5/month) taxable?

Caz1984

Hi,

I’ve seen a few old threads with people saying either answer so would love to know what’s correct?

WillPS

Most are carefully structured as cashback payments, which shouldn't be taxed. In the case of Natwest, they offer £1 for logging in once a month and £2 a max of 2 times for a £2+ direct debit for a total of £5 of cashback.

Switching incentives are more debateable.

sausage_time

It's hard to find a definitive response on this!   See this thread which implies not taxable :

https://forums.moneysavingexpert.com/discussion/6187555/rbs-is-the-5-max-monthly-reward-paid-gross-or-net-of-tax

I have never declared the cashback, but I still feel slightly uncomfortable.

SiliconChip

The answer appears to be "it depends" (as is so often the case!). I found this in a HMRC forum posted by a HMRC representative, which seems to explain which payments are taxable and which aren't:

Some bank accounts pay a loyalty reward each month to the account holder.  
These banking awards are taxable income, taxed as 'other' income. They are not classed as bank interest and do not count towards the personal savings allowance.  
The accounts where the customer receives 'cash back' as a result of purchases made, is not taxable.

See the response by HMRC Admin 5

https://community.hmrc.gov.uk/customerforums/pt/c9897497-c743-ed11-97b2-00155d3ba57b

35har1old

WillPS said:

Most are carefully structured as cashback payments, which shouldn't be taxed. In the case of Natwest, they offer £1 for logging in once a month and £2 a max of 2 times for a £2+ direct debit for a total of £5 of cashback.

Switching incentives are more debateable.

I don't think they are taxable
But if it turns out that they are you would think the £2 fee should also be deductable but it wouldn't be

pochisoldi

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim8020 is the reference here.
Virtually all incentives/cashback/rewards are structured to ensure that they are not treated as "Annual Payments".

The two failures were the "£5 then £3 then £2" paid by Halifax on their Reward Current account (treated as a £6.25/£3.75/£2.50 payment taxed 20% at source), and by the perennial divots Barclays when they first introduced their Blue Rewards (when they failed to structure properly, and also failed to tax at source).

If they don't structure correctly, the promotion costs the institution 20% more (Halifax), or they land their customers with untaxed income (Barclays).

Note that the anomalies I highlighted ended years ago - Halifax pulled the £2 reward account payment in 2020, and Barclays fixed their self inflicted problem with Blue Rewards in 2016.

PloughmansLunch

I seem to remember someone saying Halifax £5 a month reward based on holding a minimum £5000+ in your interest-free current account IS taxable, if you need another reason not to choose that option

WillPS

PloughmansLunch said:

I seem to remember someone saying Halifax £5 a month reward based on holding a minimum £5000+ in your interest-free current account IS taxable, if you need another reason not to choose that option

It is, as it relates to a balance held. Halifax pay a gross £6.25 and a NET £5 to those customers, but yes it is and remains a terrible option.

pochisoldi said:

Note that the anomalies I highlighted ended years ago - Halifax pulled the £2 reward account payment in 2020, and Barclays fixed their self inflicted problem with Blue Rewards in 2016.

Halifax did partially fix it, but their sister brand BOS never did as far as I know, unless they completely pulled the plug on their legacy Reward offering at some stage? (It had been withdrawn from sale many years ago when BOS moved their branded product range to be more aligned with Lloyds than Halifax).