Tax treatment for cashback.
My client (a close trading company) has a credit card account in the company’s name which entitles it to cashback based on the redemption of points earned on business spending through that account, which can be taken in the form of money transferred into its business bank account or as (non-cash) rewards (gift cards, etc) or used for acquiring Avios points (British Airways Club). The company’s directors enjoy the rewards.
My client is adamant that there are no tax implications either for the company or the directors personally, no matter how the points are redeemed.
I am convinced that the taxation treatment should be, broadly, as follows.
a) Cash transferred into the company’s bank account arising through the redemption of points is taxable trading income subject to corporation tax when transferred, falling squarely within the definition given by BIM80210: ‘A cashback received in the course of trading will be assessable as trading income.’
b) Rewards taken by the directors are taxable on them personally as benefits in kind received as and when appropriated to them through the redemption of points.
All points redeemed to date have been for rewards for which my client asserts there has been no cost to the company and therefore there are no taxable benefits in kind, and the company has not received any taxable income because it has not received any cashbacks.
I have referred my client to EIM21618 and emphasised that there is a tax charge where benefits are provided by reason of the employee’s employment.
My client is also arguing that a tax charge would only arise if, and when, the gift cards, etc are used to purchase goods or services. My understanding is that the tax charge arises when the reward is received by, or appropriated to, the employee and not deferred until spent (as per EIM16045).
I believe that when a reward is received by an employee, the cost of the reward to the employer must be put through the payroll and subject to both employer and employee class 1 NICs, but the tax can be dealt with on form P11D.
Lastly, the benefits in kind can be made good as long as the employee reimburses the taxable amount to the employer by 6 July after the tax year end, but my understanding is that this would only remove the tax charge and the class 1 NICs would remain.
Can Taxation readers share their thoughts?
Query 20,543 – Cash Is King.
Is relief available on the sale of rental property?
My clients, a couple, jointly own seven residential properties in the UK. One of these is their main residence, while the remaining six are let out on long-term residential tenancies. The husband also works part-time as a consultant, earning £25,000 annually. The couple is considering selling one of the rental properties, currently valued at £350,000, to raise capital for upgrading the remaining rental portfolio.
The property was purchased in 2012 for £180,000 and has been let out continuously since then. They have incurred £15,000 in allowable capital improvements over the years. They are unsure about the tax implications of the sale and how best to structure it.
Can Taxation readers weigh in on this and confirm whether the sale of the property is likely to affect their overall tax position, taking into account the husband’s income? Are there any reliefs available to them or any way to reduce their tax liability?
Query 20,544 – Speculoos.
Include directorship details where no emoluments are paid?
My clients are a married couple: he has two directorships with large companies, and they are both directors of their own family company. This pays a small dividend and no salary, but pays pension contributions for the wife.
I complete their returns on the HMRC system, which asks ‘were you employed?’ and if the answer is ‘yes’, ‘how many employments did you have?’ If I include the family company, the system will expect employment pages to be completed, and will not accept nil returns; but it seems wrong to say ‘no’ and ‘only two’, because these are, strictly, incorrect answers.
Is it wise, or necessary, or foolish, to include a note in the ‘additional information’ box to explain that there is another directorship but it pays no taxable emoluments?
Query 20,545 – Nervous.
VAT charge for work for overseas client?
My client is a UK based private investigator and undertakes B2B and B2C work for non-UK based clients. There are three different types of work: 1) covert physical surveillance (physically following a target and reporting back to the client on findings); 2) trace search reports (desktop information gathering with a report sent to a client, specifically for: background check reports; asset reports; intelligence reports; and 3) bug sweeping/technical surveillance countermeasures (TSCM) (attending a client’s address to find hidden electronic surveillance equipment).
Should he charge VAT on these services for overseas clients and is there any difference between EU and non-EU based clients? He charges VAT on all activities he undertakes for UK based clients.
Query 20,546 – Moneypenny .
Queries and replies
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