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Offline Sally  
#1 Posted : 14 October 2015 11:42:00(UTC)
Sally

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Hi All

A client asked me today if the cashback reward they get from purchases made on their debit or credit with Halifax are taxable?

I told the client in my opinion no as these effectively were a belated discount for making that purchase with that supplier that Halifax had effectively globally negotiated on their behalf, often on food or holiday type accommodation related suppliers.

As it is effectively a discount returned to the customer as a "cashback" it is a return of your own money and therefore not "income".

Interesting though when I checked my back account FAQs on whether the cashbacks are taxable or not there was no mention of tax one way or other.

Although I am sure I am correct does anyone have any technical links to back up the idea that "cash backs" of this nature are not taxable?

Has any one else been asked this question which seems quite common place but surprisingly little advice on the taxability by the banks etc. themselves...

Cheers

Sally
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Offline TaxGuru  
#2 Posted : 14 October 2015 12:01:26(UTC)
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Hi Sally

Just seen this tweeted you are right I think that the banks (mine included!) offer cash back from suppliers Pizza Express, Sainsbury's, Inns and Hotels commonly if you opt-in so to speak and spend money with that supplier on your debit or credit card usually within a specific period or by a certain date.

You are right that all the supplier is doing is returning some of your own money which is effectively a discount, not income.

HMRC mention cashbacks in the Savings and Investments Manual at SAIM8020 in the final paragraphs plus also give some guidance on what constitutes an "annual payment" that would be taxable. To be taxable it must be all of the following four things:

  1. It must be under a legal obligation
  2. The obligation to make payments must extend for more than a year
  3. It must be income, not capital, in the hands of the recipient
  4. It must represent pure income profit to the recipient (SAIM8030)


With regards to "cashbacks" HMRC's SAIM8020 also states:

Quote:
Customer rewards and ‘cashback’

Inducements or rewards offered to customers by a trade, profession or vocation might constitute annual payments chargeable to tax under ITTOIA05/S683 if they possess the above four characteristics - see examples 2 and 3 at SAIM8050. It is a question of fact in each case whether a payment has these characteristics. ‘Cashbacks’ can present difficult issues, and HMRC staff should consult CTIAA (Financial Products Team) in cases of doubt.


HMRC's Example 3 explains further regarding "cashback" offers

Quote:
Example 3

William signs up for a credit card offering a ‘cashback’ feature. Twice a year, the issuer credits to the card an amount equal to 1% of the payments William has made in the previous 6 months. Such credits are not annual payments. Each payment is contingent on his having charged amounts to the credit card in the previous period. In essence, each payment represents a one-off rebate of amounts that William has paid to the card issuer. Any future cashback received will be dependent on the cardholder making more purchases with the card and no further cashback will be received if there are no future card transactions.


Hope that helps put your mind at ease Sally.

TaxGuru

Edited by moderator 14 October 2015 12:06:58(UTC)  | Reason: correction to bullit list layout

thanks 1 user thanked TaxGuru for this useful post.
Sally on 14/10/2015(UTC)
Offline Sally  
#3 Posted : 14 October 2015 12:12:28(UTC)
Sally

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Blyme TaxGuru that was quick!

Thanks for that great answer too, as I thought but seeing some technically commentary on something is always better than just someone elses opinion.

Brill

Sally
Offline TaxGuru  
#4 Posted : 14 October 2015 12:15:58(UTC)
TaxGuru

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Glad it helped Sally.

Re being quick you were just lucky happened to spot this and it is something I checked out myself a while back so already knew the links and answer for you fortunately.

TG
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