Barclays Blue Rewards are now tax-free – how to get a free £55 in a year (though switching's better)

Those who switch to one of the top-pick Best Bank Accounts can earn up to £100 for doing so, earning much more than you would through the Blue Rewards scheme.

But if you do have a Barclays account and are determined to stay with it, Blue Rewards are a no-brainer. They normally earn you £4 a month (£7 less a £3 fee) – though if you sign up in November, you can earn double rewards for the first month and get £55 in your first year.

Even better, thanks to Barclays reclassifying the reward payments as 'cashback', from now on you'll no longer need to pay tax on what you earn. However, despite Halifax and Co-op operating similar reward accounts schemes, both told us there's been no change to the tax status of their reward payments – see our Rewards tax MSE News story for full info.

How Barclays Blue Rewards works

The Barclays* Blue Rewards programme is available to new and existing current account customers who bank online or via its app.

Once you're signed up to the scheme and have registered for online banking, you'll normally get a reward of £7 each month you:

• Pay the £3/mth fee.

• Pay in at least £800 to your account (that's equivalent to an annual pre-tax salary of around £9,800).

• Have at least two direct debits going out of your account.

This means you can effectively pocket a free £48/year – and you can earn more if you have certain Barclays products alongside your current account:

• You'll get an extra £5/mth if you have a Barclays mortgage.

• You'll get an extra £3/mth if you have Barclays home insurance.

• You'll get an extra £1/mth if you have a Barclays personal loan.

Barclays doubles rewards for a month

Those who sign up to Blue Rewards through Barclays' app or online by Wednesday 30 November will get paid double rewards for a month. Barclays extra rewards are also doubled, meaning select customers with a Barclays mortgage, personal loan and home insurance could potentially earn £16 more in the first month – a total of £29 after the fee.

Non-Barclays current account customers who complete a full switch to Barclays using the Current Account Switch Service and register for Blue Rewards by 30 November will receive triple rewards for November, though as above, don't switch to Barclays for this – there are better alternatives out there.

Barclays Blue Rewards are now tax-free

In July we reported that Barclays, Halifax or Co-operative Bank customers who earn 'rewards' in the form of monthly cash payments on their current accounts may owe tax.

That's because HM Revenue & Customs classifies reward payments as 'miscellaneous income' and therefore they're not subject to the tax-free personal savings allowance. As a result, anyone on the Blue Rewards scheme who paid tax, even at the basic rate, was warned they may need to declare the £7/mth reward payment (though not additional rewards) as income.

However, Barclays says that from now on the £7/mth Blue Rewards payments are classified as 'cashback' – which means they're NOT taxable.

Where previously you earned a flat £7 reward payment each month, technically you now earn £3.50 cashback on each of the two direct debits leaving your account.

Additional rewards earned through having certain Barclays products are different when it comes to tax though – these weren't previously taxable, and still aren't, so there's no change there.

A spokesperson for HMRC declined to comment on Blue Rewards specifically but said its view on taxing cashback was unchanged.

"Most customers are not liable to pay tax on cashbacks," he said, adding that cashback was defined as "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".

How can I spend the cashback I earn?

Cashback is paid into a separate digital rewards wallet so customers can see exactly how much money they're earning each month. You can then transfer this cash into any of your Barclays accounts, where you can spend it as you wish.

How do Barclays Blue Rewards compare?

For stubborn Barclays customers who really don't want to switch bank account, Blue Rewards is a half-decent scheme that is better than nothing. But you can earn more via different banks – and it's worth noting in our latest banking poll Barclays came second from bottom, with 21% rating it 'poor' and just 43% 'great'.

For those prepared to switch account:

• Halifax offers £100 to switchers to its Reward current account and a further £5/mth reward payment (dropping to £3/mth in Jan).

• M&S Bank offers a £100 M&S gift card to switchers and a further £10 per month for a year.

• First Direct offers switchers £100 to move to its current account, which ranks highly in terms of customer service.

• TSB offers £100 to those who switch to its Classic Plus account, which also pays 5% interest on up to £2,000 (dropping to 3% on up to £1,500 in Jan) and up to £5/mth contactless cashback until Sep 2017.

For those focused on in-credit interest, Bank of Scotland, with its 'Vantage' feature, offers a variable 3% AER on amounts between £3,000 and £5,000, while Tesco Bank offers 3% AER on amounts up to £3,000 (although bear in mind its recent security issues).

Despite market-wide interest rate cuts in recent weeks, Tesco Bank and Bank of Scotland have indicated that their rates are not currently under review – though this could change at any time. For more see Best Bank Accounts.

This article was updated on 15 November to include the latest top pick bank accounts.