How to account for use of Living social (or similar discounted gift certificates)

How to account for use of Living social (or...

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Im book-keeper for 3 restaurants - 2 are VAT registered, the other is not yet (new and not reached threshold!)

They have all run a scheme via Living Social whereby they sell vouchers (for a short period) for a meal for 2 at £24  or for 4 people at £47 (discounted from the usual price of eg £50/100).This includes one drink.

Some customers bring paper vouchers in and some just bring their mobile devices (from which they can redeem vouchers).  There is no value on the actual bits of paper - just a barcode, so its up to the waiters to redeem online.

Living Social provide no invoices but a report via their website of total voucher redeemed and therefore the overall income due, less their fees  (plus an elemnet for VAT)and then how much they pay across to the client. The only thing is that the report changes the minute anyone redeems a voucher so the only thing reliable is the money paid over.

I currently split all customer spend between food and beverage nominal codes based on totals from Z listings from an EPOS system. Ive been told that the vouchers used are not run through the Z totals but as vouchers are redeemed the Total are shown on a spreadsheet that the staff use daily and will be sent to me so I am now just wondering the best way to key the entries for the living Social side of it? 

For the VAT registered companies - Do I have to pay VAT on the face value of the voucher or on the £24 / £47 value? Would I just key the voucher sale to food sales (as I do not know the split) or is it better to operate through a different nominal code?  How would I account for the money coming back in from Living Social - would this just be reversed from the sales nominal code and how would I treat their fees and the VAT on their fees when its a 'moveable' amount?  The amount their send through is already net of fees., but I cannot see it on their system to know how much they have taken for what/what the VAT split is.  Ive been all around their website and cannot see any other reports - or am I missing something? 

Hope someone can help (an idiots guide please as  I seem to be having a brain meltdown on this one and its probably really simple!!)

Thanks in advance

Replies (7)

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By neileg
10th Jan 2014 16:38

More needed

How does Living Social account for VAT on the meal value? Either LS or the restaurant must account for the output tax.

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By Cheshire
10th Jan 2014 16:44

Living Social

Hi Neil

Living social charge customers say £24 for the deal and pass this £24 on to my client, less a charge for marketing fees (and VAT on the marketing only).  So the restaurant will have to account for VAT on the meal value.

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By neileg
10th Jan 2014 16:58

What I would do

Do you know how many meals each payment received is for? If so you can calculate the gross and determine the VAT inclusive deduction for VAT.

I would use a separate nominal for the discount meals so that you can show the effect that the discount is having on the GP%. I might even gross up the meal values and show the discount as a overhead with a view of seeing the full GP%

I'm not sure how LS get away with not issuing a VAT invoice for their fees. There aren't many traders that get this dispensation from HMRC. You need some evidence that you have properly incurred the VAT on the fees to be able to reclaim it. This is normally a VAT invoice but in certain circumstances HMRC will accept other evidence.

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By Cheshire
10th Jan 2014 17:18

Hi

Each £24 payment is for two meals and each £47 is for 4. Problem is that on the daily reports from the restaurants just show Vouchers used for the day £xx  so there is no way of knowing how many of the different types/values are included.  Also not helped by me being told a month after introducing it!!!

So I would be correct in saying that VAT is calculated on the £24/£47 rather than the perceived value of the vouchers of £50/£100? (Or if I gross up in sales then I would ensure VAT included on the corresponding direct overhead figure - good idea by the way to show the full GP!)

I think I will email LS - they should be providing more robust figurework anyway (was interesting to see the figure change before my very eyes as someone obviously redeemed a voucher, but not good for trying to get it right/reconcile!)

Thanks for your help

 

 

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By neileg
13th Jan 2014 09:23

Yes, you account for the income actually received, not the notional value.

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By Cheshire
14th Jan 2014 10:43

Living Social

Thanks - am thinking I will account for it when its paid across from Living Social rather than daily against the vouchers themselves, although still trying to find out if they will provide written confirmation of VAT on charges, rather than relying on website which changes daily!

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By neileg
14th Jan 2014 10:54

OK, but...

I'm struggling to understand a trading relationship where the recipient doesn't know what they are being paid for.

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