Tax treatment of loyalty scheme benefits generated by company spending

There are many retail loyalty schemes available to consumers – covering anything from groceries to cosmetics. Wouldn’t it be good if you could personally benefit from extra points generated by business as well as personal purchases?

We asked contractor accountancy firm, Intouch Accounting, how loyalty card points generated by business purchases are treated for tax purposes:

Steering clear of the benefit in kind trap

Did you know that as a limited company contractor you’re able to make business purchases using your personal store card, for example, a Boots or Nectar card, and any points or tokens generated can be used for personal purchases?

Usually, when a personal purchase is made through a limited company, a benefit in kind is considered to be received by the contractor, and will, therefore, be subject to personal tax on the value of the benefit.

This would be 20% for a basic rate taxpayer, 40% for higher rate taxpayer, plus the limited company would be subject to National Insurance at 13.8% on the value of the benefits received.

Certain conditions must be met

So why is it any different when using points or tokens for personal use?

The following three conditions must be met for such bonuses not to be deemed as benefits in kind:

1. The loyalty card/account must be in your personal name, and not the employer’s.

Here is an extract from the official explanation in HMRC EIM21618.

“Provided the vouchers, air miles or points belong to the employee rather than the employer, they are not considered as being provided by reason of their employment even if the goods or services giving rise to them happen to be purchased as part of the employee’s business travel or using a credit card provided by the employer.”

2. Any points or tokens received on that card/account cannot be subject to employment conditions or deemed to be an incentive provided by your employer. If you could only receive the points due to you being employed by your company – this wouldn’t be allowed, for example:

“…where the employer purchased a block of air miles and distributed them to the employees, perhaps as part of an incentive scheme.”

3. The same type of loyalty card/account must also be available to all members of the public. For example, if air miles are rewarded for a particular business flight, the exact same reward must be available to anyone else buying the same flight.

To summarise

The reasoning behind the tax treatment of loyalty points is that there’s essentially zero cost to the limited company, as long as the points/tokens collected are to be used solely for personal purchases.

So as long as the above three conditions are met, limited company owners can enjoy making personal purchases tax-free using points/tokens generated by business purchases. This includes air miles, petrol tokens, and points generated by a multitude of other retail bonus schemes.

Before you make any purchases using your loyalty card points we’d always advise running your plans past your accountant to make sure you’re keeping on the right side of the taxman.