Are referral rewards taxable in the UK?

Whether a referral reward is taxable depends on what the reward is, who pays it and how regularly you earn it. A small discount on your own purchase is treated very differently from cash you are paid for recommending a product to other people. This article is general information, not tax advice, and rules change, so check gov.uk or speak to an accountant for your own situation.

Two kinds of referral reward

1. A discount or credit on your own purchases. If a brand gives you $50 off your first stay because you signed up through a link, that is generally a price reduction, not income.

2. A reward for referring others. If you receive cash, vouchers or credit because other people signed up through your link, that may count as income, especially if you do it often, promote links publicly or earn meaningful amounts.

The second kind is where tax questions arise.

The trading and miscellaneous income allowance

HMRC's Business Income Manual describes a trading and miscellaneous income allowance of £1,000. In simple terms, if your relevant income from small trades and miscellaneous sources in a tax year is within the allowance, it may not be taxable, and an individual can use it to reduce taxable income to nil.

Important limits:

• It cannot be used to generate a loss.
• It is not available for income from connected parties.
• Accountancy sources quoting HMRC state that it cannot be used where you have trading or property income from your own employer, or the employer of your spouse or civil partner.

Is a referral reward trading or miscellaneous income?

That is the grey area. Nothing we found gives a clear HMRC ruling on referral schemes in general. A one off reward from a friend recommendation might be treated as miscellaneous income or as outside the tax system altogether, whereas running a site that earns regular referral income looks like a trade.

The more your activity looks like a business, the more likely it is to be treated as trading income. Signs include:

• Doing it regularly and with a plan
• Promoting links publicly to earn money
• Earning significant amounts
• Spending money on promotion

Do you have to tell HMRC?

Secondary accountancy sources say that if your total relevant income is £1,000 or less, you do not have to tell HMRC. They also describe higher thresholds for other kinds of income. We could not confirm every figure against gov.uk, so check the current rules there before relying on them.

If your income is above the allowance, you may need to register for Self Assessment and report it.

Practical steps

1. Work out who pays each reward and whether it is cash, credit or a discount.
2. Keep records of what you earned, when, from whom and why.
3. Add up your total for the tax year, which runs from 6 April to 5 April.
4. Check gov.uk for the current trading allowance and Self Assessment rules.
5. Ask an accountant if you earn regularly or the amounts are meaningful.

If you share referral links publicly

You should also follow the advertising disclosure rules. Read our guide on how to share your referral code honestly in the UK.

The bottom line

Small, occasional discounts on your own purchases are rarely a tax concern. Regular cash rewards for referring others may be. Keep records, check the current guidance and get advice if you are unsure.