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Taxable incentive from RBS to switch bank?

Is the payment for switching to a new business bank taxable compensation or something else?

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Following the earlier bail-out of the Royal Bank of Scotland, the Bank is now being forced to get rid of many business customers and is providing payments as an incentive to move to various competitor banks.

The European Commission agreed measures against RBS to minimise distortions in competition that resulted from the bail-out, mainly to promote greater competition in the SME banking market (for businesses with annual turnover of  £25 million or less).

This includes up to £350 million for an Incentivised Switching Scheme to provide funding to other banks, in order to incentivise RBS’s SME banking customers (particularly Williams & Glyn) to switch their primary business current accounts and borrowing facilities to other banks.

This cash is being split between a payment to the business to cover switching costs (£75m) and a "dowry" to the other bank (£275m) that the bank can choose how to use for the benefit of the ex-RBS customer.

It is not clear to me how this "Business Banking Switch" receipt should be treated, but I would assume that it is a taxable receipt as it relates to the client's business activities.

My logic being that previous bank charges and interest were tax allowable, so the receipt of a sum to compensate for the previous charging / service should be a taxable business receipt in some form.  However, it does not appear to be compensation, but more an inducement payment.

There is limited information online at: https://businessbankingswitch.rbs.co.uk/about

Any ideas where I can start to confirm the tax treatment of these potentially large sums?

Replies (17)

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By Duggimon
25th Jan 2019 09:34

Well when the Halifax used to give current account holders £5 a month as a reward we just treated it as interest...

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Replying to Duggimon:
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By Wanderer
25th Jan 2019 09:53

Which unfortunately it wasn't. Needed to be reported as 'other income' to get the strictly correct tax result.

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Replying to Wanderer:
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By Accountant A
25th Jan 2019 21:52

Wanderer wrote:

Which unfortunately it wasn't. Needed to be reported as 'other income' to get the strictly correct tax result.

My recollection is that it is an annual payment. Presumably more relevant now we have the Savings Allowance, which presumably doesn't apply to APs.

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Replying to Accountant A:
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By Wanderer
26th Jan 2019 09:17

Accountant A wrote:

..... more relevant now we have the Savings Allowance, which presumably doesn't apply .....

Exactly. Don't know if the Annual Payment logic applies but the rest is true. No 0% band usage on the receipt.
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By alan.rolfe
25th Jan 2019 09:40

Further update: RBS say: "it is the new bank which pays any cash incentive and we have had no communication on whether these payments are taxable"

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By atleastisoundknowledgable...
25th Jan 2019 09:59

Isn’t it an indirect government grant?

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By JDBENJAMIN
28th Jan 2019 12:09

I simply offset such rewards against bank charges. I'm not aware of any case law that says whether they are taxable or not, or on what basis, but my personal guess is that they would be held to be taxable as part of the business's income. The amounts involved are too trivial for anyone to have tested it, I would guess.

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By Vile Nortin Naipaan
28th Jan 2019 13:42

Is ITTOIA 2005, s 25 (or CTA 2009, s 46 for a company) at all useful to you. Whilst for an individual you look for what provision makes it taxable, with a business you look at the constituents of the business profits per the accounts and look for what provision might make it not taxable.

Drawing a parallel with non-business situations definitely isn't useful.

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Replying to Vile Nortin Naipaan:
By alan.rolfe
30th Jan 2019 09:51

Thanks Vile Nortin Naipaan.

Considering it from an accounting basis and then looking at why it would not be taxable seems the obvious way to look at the problem - now that you've pointed it out!

Doing that there seems to be limited chance that a suitable reason can be found to avoid tax.

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By yorkshirepudding
27th Feb 2019 16:57

Any ideas what this payment would be accounted as? Is it Other/Miscellaneous Income?

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Replying to yorkshirepudding:
By alan.rolfe
27th Feb 2019 17:11

My view (currently!) is that this will be treated as a non-trading loan relationship credit, as it is derived from the loan relationship with RBS.

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Hallerud at Easter
By DJKL
27th Feb 2019 17:10

More important ,any idea of amounts they are paying to account holders?

We have a company with a current account and a deposit account with RBOS, I was actually going to wind up the company, just a few pounds left in its accounts, but if RBOS are going to give us a bung am happy to sit on my hands for a bit to see what develops; but only if the price is right.

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By agburton
27th Feb 2019 19:16

Just seen they are paying up to £750 in some cases. Quite a lot!

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Replying to agburton:
Hallerud at Easter
By DJKL
27th Feb 2019 21:05

Given we have about £40 left in the two accounts that would be a decent rate of return.

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By Grovely
22nd Mar 2019 15:14

Just received our Switching Incentive under the above scheme, what is view on VAT treatment ? Exempt as non trading !

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By seitler
18th Apr 2019 21:09

The amounts are much higher. We have seen clients offered £3000 as an incentive. Now its more interesting to find a reason not to tax it

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By alan.rolfe
20th Jan 2020 12:25

A quick update (as we have another client getting thousands from this switch):

The RBS agent I have chatted with online (via the chatbot window) has stated that "it is expected that the receipt of any cash offer will be subject to tax. HMRC has confirmed that cash awards should not attract VAT".

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