I have a pub which operates a system of awarding points when a customer buys goods. These points cannot be converted to cash but when the customer has earned enough points the points can be redeemed against purchases. The pub does not operate the cash accounting scheme.
Some customers save the points during a whole year and spend them at Christmas and the redeemable value can run to several hundred pounds per customer.
We account for the full output tax at the point of sale however is there a reduction in output VAT in relation to the points awarded?
If a reduction in output tax is allowable is the tax point the date the points are awarded, as in a discount, or date the points are redeemed as a sort of realised "bad debt". I do not believe that the points can be treated as input tax as the customer would have to be VAT registered and provide goods or services for this to be the case, however VAT is a strange beast so I am covering my bases here.