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Jun 3, 2019 · You just pick what works best for you. #1 - Reduce your expense by the amount of cash back received. This can be an accounting nightmare if you have a large number of purchases that qualify for the cash back incentive during the month. #2 - Report the cash back as general business income.
May 17, 2023 · Learn if the rewards and cash back you earn from business credit cards are taxable. We explain the current UK tax rules for businesses.
- Overview
- Detail
- 1. Overview
- 2. Gifts of goods
- 3. Gifts of services
- 4. Samples
- 5. Non-monetary consideration and business promotions
- 6. Promotions of goods or services for a single price
- 7. Coupons
- 8. Face value vouchers issued before 1 January 2019
Find out how to account for VAT schemes on business gifts, samples and promotional schemes.
This notice cancels and replaces Notice 700/7 (28 May 2012).
1.1 Information in this notice
This notice explains the VAT treatment of: business gifts samples different kinds of business promotion schemes It is intended to help you make sure that the correct amount of VAT is accounted for and paid. It does not cover: supplies of sponsorship which is covered in Notice 701/41 business entertainment which is covered in Notice 700/65 the detailed operation of retail schemes (covered in Notice 727) or bespoke retail schemes (covered in Notice 727/2)
1.2 Changes to this notice
The technical content of section 8 has been updated to take account of developments in both law and policy on vouchers. Section 9 has been added on the treatment of vouchers issued after 1 January 2019. Paragraph 2.2 has been amended to clarify the meaning of a gift. Paragraph 2.14 has been added to explain the treatment of the disposal of obsolete stock. Other text has been changed to improve readability.
1.3 Who should use this notice
This notice is intended for businesses who: make gifts of goods or services give away goods which are samples of their supplies are involved in business promotion schemes, for example cash-back schemes or where goods or services are given as rewards to either retail or trade customers are involved in the issue, supply or redemption of coupons or vouchers
2.1 Free gifts of goods for no consideration
A free gift means that you receive no consideration in the form of money, (monetary consideration), or non-monetary consideration. For more on this see section 5. If you give away goods and are entitled to recover VAT on them as input tax and you receive no payment or other consideration for them, you must account for VAT on their cost value. That is unless they can be treated as business gifts under paragraph 2.3.
2.2 Definition of a ‘business gift’
A business gift is a gift of goods that is made in the course of promoting your business and for which you were entitled to reclaim the VAT you were charged on its purchase as input tax. By ‘gift’ we mean a definite, voluntary and unconditional transfer of the goods for no consideration. Business gifts cover a wide range of items from brochures, posters and advertising matter to expensive goods of the kind given as ‘executive presents’. They also include: long service awards and retirement gifts goods supplied to employees under attendance or safety at work schemes items distributed to trade customers goods given to customers as a ‘thank you’ prizes of goods in free lotteries, competitions and dispensed from amusement and gaming machines, read Notice 701/29 for more information
2.3 When to account for VAT on business gifts of goods
You do not have to account for VAT on business gifts made to the same person so long as the total cost of all gifts you make to that person does not exceed £50, excluding VAT, in any 12-month period. To check this it is acceptable for you to adopt any 12-month period that includes the day on which the gift is made. You must normally account for output tax on the total cost value of all the gifts where the following apply: the total cost of business gifts given to the same person in any 12-month period exceeds £50 you were entitled to claim the VAT on the purchase as input tax How to work out the cost is explained in Notice 700.
3.1 General
If you provide a service to a customer free of charge there is usually no supply, so no VAT is due. If you have bought in the supply of services, any VAT incurred is input tax and therefore may be reclaimable subject to the normal rules. In that case, output tax is due on the services you pass on free of charge. If you simply pay for a third party to provide services to someone else, any VAT incurred is not deductible by you as input tax since the supply is not to you.
3.2 Business entertainment
Where you have bought in services or goods to be used for the purposes of business entertainment, you will not normally be able to deduct input tax, read Notice 700/65 for more information about business entertainment.
3.3 Provision of accommodation to employees
Read Notice 709/3 if you supply your employees with accommodation on your premises.
4.1 Definition of a sample
We use the following definition of a sample: ‘A specimen of a product which is intended to promote the sales of that product and which allows the characteristics and qualities of that product to be assessed without resulting in final consumption, other than where final consumption is inherent in such promotional transactions.’
4.2 VAT treatment of samples
If you provide free samples of products to individuals for marketing purposes and they meet the definition in paragraph 4.1, they are not liable to VAT.
4.3 Examples that do not qualify as a sample
A finished item taken from a discontinued line. Although you may intend it to demonstrate the type and standard of that particular range, it could not promote sales of that product line since it is no longer available. A product provided in quantities greater than necessary for its characteristics and qualities to be assessed. For example, a wine importer may provide a bottle to potential clients as a sample before deciding to buy. However a case of 12 bottles is indicative of there being more than just a sample.
5.1 Introduction
Where payment for a supply of goods or services is totally in money this is known as monetary consideration. It is also possible to have non-monetary consideration. This occurs when your customer agrees to do, or not to do, something in return for the supply they receive from you. Your customer has provided you with non-monetary consideration for your supply.
5.2 How to value non-monetary consideration
The value of any non-monetary consideration is its monetary equivalent. This is normally the price the customer would expect to pay for the supply if money was the only consideration. In certain circumstances this might be equivalent to the cost of the goods supplied.
5.3 Example of non-monetary consideration
An example of non-monetary consideration is where you offer goods to your customer for a lower price on condition that the customer provides you with a service in return. If your customer fails to provide the service, you will charge your customer the full price of the goods you are supplying. In agreeing to provide this service your customer is providing non-monetary consideration, the value of which is equivalent to the amount of the reduction in the price of the goods.
6.1 Offers such as ‘buy one get one free’ and ‘meal deals’
Goods, or goods and services, may be offered together in a promotion for a single price. Examples include: buy one get one free buy three for the price of two buy a sofa and get a free foot stool This also includes ‘meal deals’ where a variably priced sandwich, soft drink and snack or dessert are offered for a set price when purchased together. Alternatively, the offer may involve a set price reduction, say 50 pence, off the total of variably priced items such as sandwiches, soft drinks and crisps. This is normally referred to as a multiple supply and the total amount you receive from the customer will usually cover all the goods and services involved. If the items offered are liable to different rates of VAT you will usually have to apportion in the normal way. Notice 700 explains how to do this. For minor items linked with a major item that is liable to a different rate, the linked supplies concession may apply.
6.2 The linked supplies concession
The linked supplies concession applies where a minor article is linked, not necessarily physically, with a main article which has a different VAT liability. The price paid should normally be apportioned you may, as a concession, account for VAT on the minor article at the same rate as the main article - as long as the minor article: is not charged to the customer at a separate price costs you no more than 20% of the total cost of the combined supply (excluding VAT) costs you no more than either: £1 (excluding VAT) if included with goods intended for retail sale £5 (excluding VAT) otherwise If your supply meets the above conditions, the articles do not need to be detailed separately on your invoice. Notice 701/10 has more information about goods linked with printed matter. In all other circumstances where you have to issue a VAT invoice the minor article must be shown. Read Notice 700 and Notice 700/21 for more information on invoicing.
6.3 Multisave promotions subsidised by a manufacturer
Manufacturers sometimes make payments to retailers towards the costs of promotions such as buy 3 items for the price of 2. If the payments relate to products that are liable to VAT at a positive rate, manufacturers can reduce their output tax by the amount of VAT included in the payment to the retailer. If the payment relates to products having different rates of VAT you will usually have to apportion the payment in the normal way. If you receive these payments as a retailer, they represent further consideration for the supply to the customer and so you must account for VAT. They should be included with retail scheme takings. Read Notice 727 for more information. On the other hand, the manufacturer may pay you for providing a service to them, for example to advertise the promotion or the products. You must account for VAT at the standard rate outside any retail scheme. This, in turn, is the manufacturer’s input tax subject to the normal rules.
7.1 Definition of money-off coupons
These are coupons issued to the public offering a reduction in the price of a future purchase. Money-off coupons are also commonly referred to as discount vouchers. They can be issued in a variety of ways, for example: when another article is bought when purchasing goods to a specific value by mail-shot or electronic means as cut-out coupons in newspapers or magazines They include coupons issued by retailers under their own schemes, or by manufacturers. In either case it does not matter whether the coupon is attached to a product or not.
7.2 Issue and sale of coupons
Normally money-off coupons are issued for no payment or consideration. Even where the issue is linked to the purchase of goods, there is no VAT due on the coupon provided the goods themselves are sold at their normal price. If a value is given to the coupon by a price differential then the following paragraphs will apply. If you sell money-off coupons, discount coupons or discount cards, which entitle the holder to discounts from: other businesses, then this is a standard-rated supply and you are required to account for VAT yourself then the payment should be accounted for based on the liability of the underlying supplies For more information, read: Notice 727/3 Notice 727/4 (paragraph 6.12) Notice 727/5 (paragraph 7.12)
7.3 Redemption of coupons
When you redeem your own money-off coupons and you operate a retail scheme, you need only include any payment received from the customer in your daily gross takings. Where you redeem a third party coupon, for example from a manufacturer, then the value of the coupon must also be included in your daily gross takings, along with any other payment received from the customer. You should follow the rules set out in the relevant Retail Scheme notice appropriate to your business. These are listed in paragraph 1.1. If you do not operate a retail scheme VAT is to be accounted for, at the time of supply, on: the amount due from the customer plus any further payment due - for example from the manufacturer Reimbursement or payment for supplies of goods or services from anyone other than your customer is still part of the consideration for the supply to the customer. A VAT invoice must not be issued to anyone other than the customer. Where coupons alone are accepted as payment for goods or services, VAT may be due under the business gift rules explained in section 2 for goods and section 3 for services.
8.1 Definition of face value vouchers
Face value vouchers are vouchers, tokens or stamps with a cash value stated on them or recorded, for example electronically, within them. Examples include: gift cards or vouchers phone cards book tokens electronic top-up cards They are normally supplied for a consideration and provide a right to receive goods or services to their face value. A face value voucher may be used as part payment for a more expensive supply of goods or services.
8.2 Issue of a face-value voucher
By issue we mean the voucher has been given value and is capable of being used to purchase goods or services for that value.
8.3 Types of face value voucher
Face value vouchers are separately defined as: single purpose vouchers credit vouchers retailer vouchers other kinds of voucher Postage stamps are also face value vouchers if they represent a right to receive postal services. They are covered in paragraph 8.8.
Oct 12, 2022 · If you are in the process of setting up a new business you may be able to claim back some of the expenses you incurred before you started trading through your first tax return.
Jul 26, 2023 · Cash-back rewards can be recorded when earned or redeemed, depending on materiality. Valuing points is intricate due to varying multipliers. Sign-on bonuses may be taxable based on spending requirements. Business credit card rewards are generally not taxable, but some programs may be.
Aug 21, 2019 · A company is using a Santander 'Business Banking Cash Back Card' and receiving a couple of hundred pounds per month as a 'Cashback awarded' based on 1% of the previous months spend:
May 22, 2023 · How to record the VAT on Cash Back. The cashback will be treated as other income for accounting purposes. However, HMRC’s notice 700/7 explains that the VAT registered customers need to reduce their input tax if they are claiming a cashback provided by the manufacturer of the product.
