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Money off your beer and VAT

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.

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As I understand it, the VAT postion is that you will have to pay VAT on the ACTUAL consideration receveived.

 

See ,as an example!

10.7 Loyalty discount Cards

Retailers may provide loyalty cards free of charge to customers allowing them to purchase further goods and services at a reduced price. In these circumstances only the amount of consideration actually received by the retailer is the taxable amount on which VAT is required to be accounted for.

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Daily Gross Takings

The pub is presumably a retailer and so calculates VAT on the DGT received.  If they sell drinks or food for say £10 and the customer earns points worth say £2, they pay VAT on the £10 received at the point of sale.

If the customer earns a discount and uses this later to pay for the same drinks or food, using his discount points, he will pay £8.  The retailer accounts for VAT on this £8, effectively reducing the VAT to the discounted price.

This seems to make sense to me, but vouchers etc can be mind boggling!

A number of years ago, certain retailers (I believe Tesco) argued that there was value in the points issued, and they could reduce DGT to the cash received less the points value, deferring the output tax to when the points are used.  Of course the major advantage of this kind of thinking is the non-redemption rate of the points - permanent VAT saving.  These schemes did not work per the Tribunals.

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26th Feb 2013 11:24

To answer your question, the tax point will alway be the receipt of the cash as retailer. When the points are redeemed there is a reduction in the considerastion received and the tax point is the date the reduced consideration is received. If the points are redeemed and there is no consideration then there is no tax point. 

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Just to throw my spanner in the works...

... if the customers accumulate their points such that they're providing no actual consideration for the food and beer (goods) they're being provided with, then either:

that's business entertainment and you can't recover the input VAT, oryou need to account for output VAT on the cost of the goods so supplied.

You might want to consider, having a maximum amount of points (as a proportion of retail price) that can be used in any single purchase.

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26th Feb 2013 11:43

Sorry George don't agree - it is a supply of goods for no consideration - can't be business entertainment as it is not freely given. You have to accumulate the points. Do you think Tesco who accept clubcard vouchers for a total shop account for Output tax on the supply of standard rated goods.  

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Aha!

Yes. The penny's dropped. Thank you. Ignore me!

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