Tax on bank rewards and cashback

Tax on bank rewards

Some high street banks have been offering rewards to their customers.  A common question is whether or not you have to pay tax on bank rewards.  Rewards are typically paid subject to criteria such as paying in a minimum amount each month and setting up direct debit instructions.

Unfortunately you do have to pay tax on bank rewards.  If you are a basic rate taxpayer and your reward is paid net (e.g. Halifax and Co-op) you won’t have any more tax to pay, but higher rate taxpayers will need to pay the additional tax through their annual tax return.  If the fee is paid gross (e.g. Barclays) you will need to include the reward income in your tax return and the tax will be collected along with any other tax you have to pay.

Cashback rewards on spending

Cashback from the bank based on spending is not classed as income so is not subject to income tax.  Switching incentives are also outside the scope of tax so you don’t have to declare these either.

Are bank rewards taxed as interest?

HMRC has confirmed that bank rewards are not taxed as interest.  This means that you can’t include this income income in your personal savings allowance.

Reclaim tax on bank rewards

If you are not a taxpayer you can claim bank the tax on bank rewards by filling in form R40 and sending it to HMRC.  Even if you are a taxpayer you can reclaim tax paid if your total earnings are less than your personal allowance (£11,000 in  2016/17)

For advice on reducing your tax bill please contact Alterledger using the contact form below.