tax saving on card points

tax saving on card points

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 I have a client that wants to join a loyalty scheme that gives him a personal prepay mastercard. If he buys £100,000 of 'advertising' through his company from the provider they give him back 80% (£80,000) to spend on his personal card at certain big name retailers. I raised the question of benefit in kind but the provider says its not and its quite legal. But this gives him £80,000 of tax free drawings. How can this be? Has anyone come across this?

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By Wanderer
29th Jul 2015 13:41

Sign me up!

Sounds great! No doubt they have a scheme to cover school fees & pay my mortgage as well??

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By slipknot08
29th Jul 2015 13:59

wholly & exclusively?

Forgive me for not being an accountant, but does this work at all? Out of the £100k spend through the company, £80k must be added back in the tax comp, because only £20k is being used to pay for a service for the business - the rest is being used for personal stuff. I'm not (as noted) an accountant, but I wouldn't want to put the whole £100k through the P&L to start with - surely one of the myriad versions of GAAP or FRS has something to say about accounts ending up showing 'a true and fair view' (or whatever the term now is)? Only £20k is a genuine 'business' expense, so only £20k in the P&L. The other £80k to the DLA - but aren't you then going to have s.455 and BIK issues?

It's just like those dodgy employment consultant schemes from a few years back: you pay £1m to an 'employment consultant' for consucting a wages review and paying staff wages/bonuses. The actual payment out for the 'review' and wages is a fraction of £1m, but the whole £1m cost is put through the P&L... didn't work either, as far as I'm aware...

PS: for the sharp-tongued among you, who enjoy putting people down, please don't bother yelling at me for being ignorant - I'm trying to help.

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By Mr_awol
29th Jul 2015 15:35

Have a look at EIM 20503 and EIM00530.

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By tax novice
29th Jul 2015 18:27

good point slipknot, are you in a mask?

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By tax novice
29th Jul 2015 18:31

Thanks AWOL I had looked at those and thought its not entirly clear. HMRC say that reward systems are outside P11D's.

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Portia profile image
By Portia Nina Levin
29th Jul 2015 18:46

There is a benefit

If the whole £100,000 spent on advertising is genuinely for the purposes of the business, then slipknot08 (who is not an accountant and just threw a piece of made up advice into the mix in an effort to help) has got it completely wrong. Just like all their other posts.

There is a benefit in kind but the individual is only taxable on the cash equivalent of that benefit.

What is the cash equivalent, I hear you ask.

Well, it is the cost to the person providing the benefit of providing the benefit, less the amount of cost made good by the employee (none).

Well the cost of providing the benefit was £100,000 I hear you say.

It is not as simple as that. The law says that in determining the cost of the benefit we include a proper proportion of any expense that is partly attributable to providing the benefit and partly attributable to other matters (like getting some advertising).

Looked at another way, we should exclude from the £100,000 cost the proportion of that expense that is proper to the other matter of procuring advertising for the company.

I have now got to £100,000 - £100,000 = £0. What have others got to?

Incidentally, this is just a variation of the old air miles theme. See http://www.hmrc.gov.uk/manuals/eimanual/eim21618.htm

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By tax novice
30th Jul 2015 06:08

Thanks Portia. I had seen EM 21618.

My thoughts are that if the provider can give back £80,000 of the £100,000 received for advertising then the advertising is not worth £100,000. They have paid over the odds for it to the tune of £80,000 so that is a benefit and the £100,000 is not fully allowable in the company. IF I was HMRC that is what I would argue.

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By Mr_awol
30th Jul 2015 09:40

I didn't reply properly yesterday as i was in a rush -slightly more detailed reply now.

Reward systems certainly are outside P11Ds - i.e. EIM21618 but that is not relevant here - it applies to nectar points, air miles, etc acquired in the normal course of loyalty schemes available to the general public.  It covers me using my Tesco credit card f business purchases and 'profiting' from the clubcard points because I used my card rather than the firm's one.  It doesn't cover bespoke kickback/incentive arrangements.

At first sight this is a benefit provided by a third party (so P11D) and you just need to decide whether that point is over-ridden by it being deemed to be earnings under S62 - I would say not, as although it is money or money's worth, it is a credit token (EIM16090/EIM16140 apply)

Putting a fairly sturdy tin hat on, I'm going to disagree with Portia's calculations.  The benefit is the amount incurred by the employer OR THIRD PARTY in obtaining the token - so either the employer paid £100k for £20k advertising = £80k benefit OR the employer paid £100k for £100k advertising = no additional cost BUT then the third party paid £80k for the benefit which was provided to Mr employee.

Either way, the benefit is the same.

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wolfy
By rob winder
18th Jun 2020 19:04

I'm a bit late to the party but I've had B2B pestering me today. I wouldn't touch it with a barge poll. For me the key sentence in eim 21618 is

"It is important to remember that the exact tax treatment will depend on the facts of a particular case."

This is HMRC's get out of jail free card.

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By Huggy
09th Jul 2020 15:44

I've also had these people asking me to promote this, they reckon some accountants are receiving in excess of £12,500 a quarter for promoting it!!

I told them I just wasn't comfortable with it and wouldn't promote it. I suppose the big question is whether the advertising is worth what they say it is and if it really is why are they happy to put 80% back on a credit card for spending? They sent me the Abbey Tax letter about the scheme but it hangs on the assumption that the advertising is worth the money paid for it and this is where I think they are going to come unstuck.

Come on HMRC, surely you want to jump on this one sooner rather than later!!

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