Cashback schemes and tax

Statement of Practice 4/97 sets out HMRC’s views on the correct treatment for tax purposes of commission, cashbacks and discounts. Cashbacks are taken to mean lump sums received by a customer as an inducement for entering into a transaction for the purchase of goods, investments or services and received as a direct consequence of having entered into that transaction.

In general, an ordinary retail customer purchasing goods, investments or services at arm’s length will not be liable to Income or Capital Gains Tax in respect of any commission, discounts or cashbacks received by them. This applies even if the commission or cash-back is paid under an enforceable contract separate from the contract for the supply of the goods or services itself.

However, if someone is paid for introducing some other customer to the supplier of goods or services, then they are taxable under the miscellaneous income sweep-up provisions if:

  • they are not otherwise chargeable; and
  • the payment is not gratuitous.

Note that a cash-back received in the course of trading is a receipt of the trade to be included in taxable trade profits.

Posted in HMRC notices

Exeter Accountant MJ Smith & Co

Celebrating 25 years of excellence.

Free 1st Meeting
Fixed Fees
Free Support!

Find out more

Client Portal Login

Forgot Password?

Latest News

2020 May bank holiday will be moved to mark 75th anniversary of VE Day

The government has announced that the date of next year’s early May bank holiday is to move from Monday, 4 …
Read More

HMRC’s complaint handling process

Taxpayers may find themselves in a position where they need to make a complaint to HMRC. Complaints can relate to …
Read More

VAT and disaggregation

The artificial separation of businesses is where two or more businesses are split, and each 'separate' entity operates below the …
Read More