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Business Services  •  Business Tax

Too good to be true tax saving loyalty card scheme is a con

By RJP LLP on 25 August 2023

A well established business to business loyalty card scheme, B2BTradecard, may be resulting in unforeseen tax implications for its users. This loyalty card has been operating for almost 8 years and is marketed as offering 80% cashback to business owners. The operators promote users being able to “release up to 10% of your company turnover for a net company cost of just 1%.”

Sounds great, what business owner wouldn’t be tempted by an offer like that? Unfortunately, it is too good to be true. The B2BTradecard masks a tax avoidance scheme that contains flaws according to tax experts and could result in tax penalties being due.

How does B2BTradecard work?

B2BTradecard is billed as a loyalty card for businesses that offers reduced corporation tax as a benefit, with hidden savings in the form of reduced income tax and national insurance contributions (NICs). To access the ‘80% cash back’ offer a business must buy advertising through the card which then yields a convoluted form of cash back as follows:

Business X spends £10,000 on advertising with B2BTradecard to receive cash back. This is delivered in the form of a visa card that is pre-loaded with £8,000 to spend. The company then claims a tax deduction for a valid business expense of £10,000, even though the actual value of the expenditure on advertising is just £2,000.

The scheme represents potential tax avoidance because the pre-loaded visa card is then passed to company directors to spend as they wish. They can use it to buy personal goods and services as well as business equipment and other business services. The only thing that is not permitted is a basic cash withdrawal.

The problem with B2BTradecard is that company directors could be tempted to use the scheme thinking that they can save tax, but then leave themselves vulnerable to tax enquiries due to expenditure allocation irregularities. HMRC can justifiably conclude that the £10,000 advertising cost is not fully tax deductible because it is not the actual net payment made, nor is it made for genuine advertising. If a director uses the £8,000 cash back personally, this should be treated as an income withdrawal, included within the PAYE calculations and which should have NICs applied. Due to the way the scheme operates, this can easily be overlooked, leaving the taxpayer open to an enquiry.

Note that the B2BTradecard is different to credit cards providing points as benefits, such as Avios, airmiles and other rewards.

If you have unwittingly used the B2BTradecard scheme, it is worth conducting a full review your accounts very carefully to ensure you have not paid the wrong amount of tax. Depending on the outcome, it may be necessary to make a voluntary disclosure before an irregularity is spotted by HMRC.

To discuss making a voluntary disclosure, or if you would like advice because you think you may have made mistakes on your tax return, please contact us via partners@rjp.co.uk.

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