Referral Bonus to Members of Public

I have a client that wants to start a referral bonus scheme for customers and not employees. How is this applied? Does the client set out a referral bonus agreement with the individuals and then they are responsible for declaring this extra income to HMRC themselves? Also how are these payments to be dealt with by the business paying them? Is it a legitimate business expense? Any advice would be greatly appreciated!

Hi Georgina Davidson,
Referral bonuses can be deductible for tax purposes as a business expense, but it ultimately depends on how they're structured and the specific circumstances.
Further guidance can be found at BIM40670 - Specific receipts: insurance and other commission: deduction for commission passed on to customers
The referral bonus is taxable income and should be declared as other income on the individuals tax return, but again it depends on how they’re structured and the specific circumstances. Further guidance can be found at Statement of Practice 4 (1997)
Thank you.