It sounds like they class the £5 as interest so they deduct the 20% tax before paying over. If you are a non taxpayer then you should be able to get out of the deduction by submitting a R85.

ColinJL:

You are making such a narrow interpretation of "income" that it's unlikely that anyone here can give a definitive answer, yet many would be able to give a definitive answer if it was asked of interest with tax deducted at source, yet it is clear from your original point that you don't even recognise the correctness of that.

I have appended some info, which as the Rewards account was only fairly recently introduced (Feb 09), the very specific "reward" is not specifically covered, but the HBOS tax auditor may well have considered that "miscellaneous income" might apply, and hence the tax treatment you query. I am not surprised that HBOS would take that view. On the balance of probability it's obviously "income".

I sidestepped having to even consider the issue when I recognised how high a marginal overdraft rate the £1/day represented for small overdrafts. Thanks for presenting the opportunity to point that out.

Acknowledging the CAB online advice guide.....

"Income tax law defines income tax as a tax on income and sets out how each type of income listed below is charged to income tax:

• Employment income
• Pension income
• Social security income
• Self-employed income from a trade, profession or vocation
• Property income
• Savings and investment income
• Miscellaneous income."

Anyone have a straight answer on this? (i.e whether they are legally entitled to decuct income tax on this), would be appreciated.

Jalexa - naive of you to consider that a bank in the current climate changing their charging structure isn't a means of generating more revenue for them.

To the best of my knowledge all and certainly all of mine are paid net unless you are untilted to a R85 or at the end of the tax year if you think you should have been paid gross a R40. If you look at MS's easy access savings calculator although the headline figures are gross you get paid net. If an R40 is used it's actually a bit less than 20% and the tax office automatically adjusts for you.

ColinJL:

Just reading the latest spin from HBOS on changes to charges for accounts, all of which of course is geared up to generate more income for them. One of the features of their "reward" accounts is that if you pay in over £1000 in a month they give you back £5.

And you get to spend your £1000 any way you want.

And should you keep within your agreed overdraft you pay £1/day.

While that can represent a very high marginal rate on small overdrafts, compared with other account charging regimes hardly merits "all of which of course is geared up to generate more income for them".

It's a product feature which will suit some people, but "of course" not everybody.

Will let someone else answer your other point.

Just reading the latest spin from HBOS on changes to charges for accounts, all of which of course is geared up to generate more income for them. One of the features of their "reward" accounts is that if you pay in over £1000 in a month they give you back £5. In the small print it states that this is actually £6.25 before income tax, which they charge at 20%, so net £5.

Question is, who are they to be charging income tax - surely income tax is deductable only by an employer and registered against you at the tax office or is a matter purely between you and the taxman? Can they do this?