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