How to account for gift cards in a UK business

The cash is a liability first

When a customer buys a gift card you have taken money for a future supply. In the accounts that is usually deferred income, not turnover. Turnover is recognised when the card is redeemed against goods or services, or when you are entitled to keep unredeemed balances under the card terms and UK law.

If you recognise all gift-card cash as sales on day one, you overstate income in busy gift seasons and understate it later. That distorts management accounts and can misstate Corporation Tax or Income Tax.

VAT depends on the type of voucher

UK VAT on vouchers distinguishes single-purpose and multi-purpose vouchers. A voucher that can only be used for one type of supply with VAT known at issue is often taxed up front. A voucher that can be used for mixed supplies is often taxed on redemption. Get the classification wrong and every return can be wrong.

Third-party cards (you sell a supermarket voucher) are usually agency or a separate supply. Do not run them through your own sales codes as if you sold the groceries.

• Keep a register of cards issued, redeemed and expired.
• Reconcile the liability to the payment processor or till report each month.
• Write a short policy for breakage so the year-end journals are consistent.

Year-end and refunds

Auditors and HMRC both look for a gift-card control account. Refunds of unused balances, chargebacks and stolen cards need a trail. If you operate in a limited company, this sits in the year-end pack with accrued income and other deferred items.

Solaratax can set the bookkeeping pattern in Xero or in your ledgers and then lock it into the year-end. Ask us if gift cards are material to your December or March year end.

Questions we are asked

Can I take unredeemed cards to profit after 12 months?

Only if the card terms and consumer law let you, and the accounts policy is supportable. Many retailers wait longer or keep a provision. Do not write off balances just to hit a profit target.

Are staff gift cards a benefit in kind?

They can be. Trivial benefits have tight conditions. A £100 card to an employee is usually taxable. Directors need extra care.

Do gift cards count toward the VAT threshold?

It depends on whether VAT is due on issue or on redemption for that voucher type. The turnover test follows the VAT treatment of the supply, not the till drawer.