Bank reward payments
We have become aware of an interesting anomaly concerning the payment of loyalty rewards to customers of certain banks. These ‘rewards’ are put in place by the banks to attract customers towards certain current accounts and usually have conditions attached that require the customer to deposit a set minimum to the account each month as well as the payment of a monthly fee.
The tax liability of these payments has been the subject of some mainstream press commentary over recent months. Strictly, some of these payments may be subject to Income Tax although HMRC has commented that many incentives offered by banks and other account providers are not taxable. For example, cashback payments and switching incentives offered to bank customers to switch current accounts are not taxable.
The main account affected by the press speculation is the Barclays Blue Rewards current account. This appears to be because Barclays themselves highlighted the tax treatment of their Barclays Blue Rewards current account. However, the online guidance provided by Barclays has been updated and now advises customers as follows:
‘Tax treatment of Barclays Blue Rewards
The £7 Loyalty Reward received up to and including November 2016 for being part of Barclays Blue Rewards is subject to UK income tax and may need to be declared to H M Revenue & Customs. All other current rewards and cashback earned through Blue Rewards, and any Loyalty Reward received from December 2016, are not subject to UK income tax.’
HMRC appears to have taken a very reasonable view in respect of these payments and have said they would not expect taxpayers to have to complete a Self Assessment tax return solely on the basis of this ‘rewards’ income. Taxpayers that are in receipt of a small taxable payment could be taxed via an adjustment to their tax code.
The new Personal Savings Allowance (PSA) was launched on 6 April 2016. For basic-rate taxpayers the first £1,000 interest on savings income will be tax-free. For higher-rate taxpayers the tax-free personal savings allowance will be £500. Anyone earning over £150,000 will not benefit from the new PSA. The PSA will not apply to any non-interest payments made by banks or other financial institutions.