Is business credit card cashback taxable in the UK?

The short answer

If your business earns cashback on business spending, the cashback is part of the business’s taxable result. There are two ways to book it, as income or as a reduction in the cost of what was bought, and they give the same profit figure. What you cannot do is deduct the full cost of the purchase and also leave the cashback out of the accounts.

A quick illustration, using round numbers. A company spends £10,000 on deductible costs on a card paying 1% cashback and receives £100 back. Either the costs go in at £10,000 and £100 goes in as income, or the costs go in at £9,900. Both leave taxable profit £100 higher than if the cashback had not existed. Cashback still makes the business better off; it is just not invisible to the tax return.

For private spending on a personal card, the answer is different: HMRC says ordinary retail customers are generally not taxed on cashback. That difference is the reason this question gets confusing answers online.

What HMRC has published

There is no HMRC page headed “credit card cashback”. The relevant guidance is older and more general, but it is clear on the business point.

BIM100210: cash-backs

HMRC’s Business Income Manual, page BIM100210, says: “A cash-back received in the course of trading is a receipt of the trade to be included in taxable trade profits.” It contrasts this with a customer “not carrying on a trade or property business”, who is not providing a service just by choosing one supplier over another.

Statement of Practice 4/97

BIM100210 points to Statement of Practice 4/97, which HMRC published in 1997 and which is still on gov.uk. It says its purpose is to confirm “that most customers are not liable to tax on commission, cashbacks and discounts”, then sets out the business exceptions. Paragraph 15 says cashbacks received “as an incident in the carrying on of any other business” should be taken into account in computing its profits, and gives as an example “a cashback received on a car purchased for business purposes (normally by reducing the cost of the car for the purposes of capital allowances)”.

Two caveats about relying on it. SP 4/97 was written about lump-sum cashbacks such as those on mortgages and cars, not card reward programmes, which did not look then as they do now. And paragraph 5 says itself that it cannot cover every situation and that some cases will be decided individually. It is the best published statement of HMRC’s view, not a ruling on card cashback specifically.

Cashback as a discount or as income

SP 4/97 draws a distinction you will see in accountants’ discussions. A cashback (a sum received because you entered into the purchase) paid to a trader is a taxable business receipt. A discount (where you simply pay less) is not a receipt at all, but the cost you deduct is the lower, discounted cost. Paragraph 14 says a discount “will not be a taxable receipt”; it does not say the discount is untaxed in effect, because the deduction shrinks with it.

Card cashback sits awkwardly between the two. It is paid by the card issuer, not the supplier, and arrives after the purchase as points. Capital on Tap’s own blog on the subject calls standard cashback a “purchase rebate” that is “generally not taxable” but says you “must record it correctly as it reduces your deductible expenses”. That is a lender’s summary, not HMRC guidance, and “not taxable” there means not taxed as separate income; the same post is clear that the cost you can claim goes down.

For most small businesses the label matters less than consistency, because both routes produce the same profit. Where it can matter is on a capital purchase, where SP 4/97’s car example reduces the cost for capital allowances rather than treating the cashback as trading income. If you put equipment or a vehicle on the card, ask your accountant which way to book the points earned on it.

Limited companies

A business credit card for a limited company is the company’s facility. The company spends, the company owes, and the points accrue to the company’s account. The cashback therefore belongs to the company and falls into its profits for Corporation Tax on the principles above. Capital on Tap only lends to companies and LLPs (Ltd, LLP or PLC), so for its cardholders this is the relevant section.

The trap is what happens on redemption. Capital on Tap lets you take points as balance credit, cash, gift cards, Avios, Virgin Points or Radisson Rewards. Balance credit and cash to the business account keep the value inside the company, where it belongs. Cash or gift cards sent to a director personally, or points converted into a director’s own airline account, move value out of the company.

How that extraction is treated depends on how it is done and recorded. Capital on Tap’s blog says HMRC “may view this as a benefit in kind or a taxable dividend”; it could also end up on the director’s loan account. We are not going to tell you which, because it is exactly the kind of question where the facts decide the answer. The director’s loan mechanics, and why company and personal money should not mix, are in our guide to business vs personal credit cards.

Sole traders

A sole trader and the business are the same legal person, but the tax rule is the same: BIM100210 applies to cashback “received in the course of trading”, whoever the trader is. Cashback earned on business costs goes into the profit you report on your Self Assessment return, either as income or by reducing the cost.

Capital on Tap is not available to sole traders, so sole traders will be using another card. Our sole trader cards guide covers the options. If a sole trader uses one card for both business and private spending, the cashback on the private part is the private customer’s; splitting it is fiddly, which is one more reason to keep a card for business only.

Cashback on a personal card

For private spending, the position is the reassuring one. SP 4/97 paragraph 7: “In general, ordinary retail customers 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.” Cashback on your own groceries is not something to declare.

That is also why advice written for personal cards does not transfer to business ones. A director who puts company costs on a personal card and keeps the cashback has mixed a private reward with a company expense claim, and the reimbursement, the cashback and the director’s loan account all need untangling.

Avios and airline points

HMRC’s clearest statement on points is in the employment income manual, EIM21618. It says air miles and credit card points “acquired by an employee are not taxable if they were acquired in the same way as applies to any other member of the general public”, even when the purchase was business travel or used a credit card provided by the employer, provided the points belong to the employee and were awarded to them from the outset. It adds that there is a tax charge where the points are provided by reason of the employment.

That guidance is about an employee earning miles in their own name, for example on a flight. It is not obviously the same situation as a company earning points on its own card and then converting them into an individual’s Avios account, which is how Capital on Tap’s Avios redemption works. Capital on Tap’s Rewards Terms say, in the Avios schedule, that a tax liability “may arise, for example, if you obtain Avios and or Points as a result of business expenditure” and tell you to check with an accountant or tax adviser. Its FAQ says cash redemptions “may have tax implications” and that it cannot provide tax advice.

We read that as a genuinely open question for each business, not a settled one either way. The conversion rates and how the points arrive are in our Avios for business guide; raise the tax point with your accountant before the first conversion.

Referral and sign-up bonuses

Bonuses that are not tied to your own spending are a separate question. Capital on Tap’s Refer a Friend terms say: “The value of the Referral Bonus may be taxable income to you.” BIM100210 explains why the line falls there: a customer who takes their business to one supplier rather than another is not providing a service, but someone “paid for introducing some other customer to the supplier” can be taxable under the miscellaneous income rules, subject to conditions. The referral scheme itself is explained on our referral code page.

Welcome bonuses that require a minimum spend sit closer to ordinary cashback, because they are earned by spending. Capital on Tap’s blog lists sign-up bonuses that need no spend as taxable incentives. Treat any bonus as its own line and let your accountant classify it.

VAT on the underlying purchase

Paying by card does not change the VAT on what you buy. If you are VAT-registered, the input VAT you reclaim comes from the supplier’s VAT invoice. HMRC’s VAT Input Tax manual, VIT31200, says that to exercise the right to deduct input tax a business “must hold acceptable evidence such as a VAT invoice” meeting the VAT Regulations. A line on a card statement is a record of payment, not a VAT invoice, so keep the invoice or receipt for every card purchase you reclaim VAT on.

On the cashback itself, Capital on Tap’s blog says “Credit card cashback is a financial transaction and is outside the scope of VAT” and that standard card cashback from the card provider “generally does not require a VAT adjustment”, unlike a manufacturer’s cashback. We looked for HMRC guidance stating that directly for card rewards and did not find it, so we report it as Capital on Tap’s view. If your VAT returns are material, ask your accountant to confirm.

Recording it in your books

Whatever the classification, the practical rule is the same: every redemption should appear in the accounts. If you redeem as balance credit, the credit shows on the card statement and, with an accounting sync, in your bookkeeping software, where it can be coded to an income account or against expenses. If you redeem as cash to the business account, it arrives as a bank receipt and needs coding the same way.

Two Capital on Tap rules affect the numbers. Points are each transaction rounded down to the nearest pound, so the cashback is slightly less than 1% cashback of the statement total. And points are cancelled on refunded purchases, so a refunded purchase can reduce a points balance you have already counted. Reconcile to the points actually redeemed, not to a percentage of spend. To estimate what a year of spend earns, the cashback calculator does the arithmetic, and our cashback cards comparison sets Capital on Tap against the other cards.

Questions to take to your accountant

• Should cashback be booked as other income or as a reduction in the related costs, and is that the same for capital purchases?
• Which redemption options keep the value inside the company, and how should any personal use be recorded?
• If points are converted to Avios in a director’s name, how is that treated, and should it be avoided?
• How should referral or welcome bonuses be classified?
• Does anything about our VAT position change because purchases are on a card?

None of these are difficult questions for an accountant, and asking them once, before the first redemption, is cheaper than fixing the books afterwards. If you also pay HMRC itself by card, the fees and rules are in our paying HMRC by card guide.

Credit is subject to status and eligibility. Capital on Tap advertises rates as low as 13.86% APR (variable) and does not publish a representative APR; your rate depends on your personal and business credit history and the Bank of England base rate. Lender: New Wave Capital Limited (trading as Capital on Tap).