Before we get into it, a disclaimer: While we strive to provide valuable insights and guidance to support your financial decisions, our advice is just that; advice. It’s based on our own research and understanding of the subject matter. Accounting can be a complex thing, and the specific needs of your company may vary. We strongly recommend seeking professional advice from a certified accountant or financial expert who can tailor their guidance to your unique circumstances.
Getting your gift card accounting process nailed is vital to be able to understand your VAT obligations, as well as impacting your wider financial reporting. In this article we’ll run through advice on how to handle the sales, redemptions, liability, and VAT across your gift card activities for:
Standard gift cards
Discounted gift cards
Free of charge cards
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Toggle POS Mode, PointOne, Cunninghams, Syrve, Samtouch, Kurve, WooCommerce, Polaris, Tevalis | Vita Mojo | All other redemption partners |
Do all the products that can be bought with a Toggle gift card have the same tax rate? | Do all the products that can be bought with a Toggle gift card have the same tax rate? | Do all the products that can be bought with a Toggle gift card have the same tax rate? |
If you want more context and background on accounting for gift cards, carry on reading below.
The basic concept of gift card accounting
Accounting for gift cards is all based on the fundamental principle that you cannot recognise the sale of a gift card as revenue when it is sold. Another way to view it is that the guest is paying a deposit for a future purchase. When a card is purchased, you have an obligation to honour the value of that card. This is recorded, in your accounting, as a liability of the business.
There are two ways in which the value of this liability can be recognised as revenue
Redemption the card
Expiry of the card
When one, or both, of these things happen, you can recognise the given value of the card as revenue.
You first have to determine what types of gift card you’re selling
It’s crucial to figure out if the gift cards you’re selling are classed as Multi - Purpose Vouchers (MPVs) or Single Purpose Vouchers (SPVs). This is important to know because the point at which VAT is charged is different.
MPVs are cards that can be redeemed on items of varying VAT rates. If you’re selling MPVs, VAT is not charged at the point of sale, but at the point of redemption.
SPVs are cards that can only be redeemed on items that share the same VAT rate. If you’re selling SPVs, VAT is charged at the point of sale, not the point of redemption.
The next thing to understand is what type of integration does your redemption partner have with Toggle?
It’s important to understand the type of integration Toggle has with your EPOS (or other software in which a Toggle card can be redeemed).
Some integrations recognise the split between tender (the value of the card that was paid for) and discount (the value of the card that was not paid for) on redemption. These integrations count the discount as such - not payment. You need to determine which yours is, so you can adjust your accounting accordingly depending on whether or not you sell SVPs or MVPs.
Now we’ve got a grasp of what variables affect the decision making, let’s get into it.
How to account for gift cards if they are classed as SVPs, and your integrated redemption partner supports tender and discount at point of redemption.
Overview
As all items your gift cards can be redeemed on have the same VAT rate, this means that you’re selling Single Purpose Vouchers. As a result, you pay VAT at the point of sale of the gift card, not redemption.
Your integration recognises redemptions as tender (payment) and discount (what was given for free). Dealing with the VAT, and acknowledging any discounts on gift cards given at the point of sale means that you do not need to acknowledge the split of a card between tender and discount at the point of redemption.
Your integrated redemption partner will report any proportion of a card that was given for free as a discount. However, you can ignore this, and treat this as tender as well when cards are reconciled.
If you were to treat it as a discount, you would be counting the discount twice as you should have already accounted for it as a cost of sale, and therefore paid the correct amount of VAT on whatever was paid for at that point.
Example process for a standard gift card
In this example, we’re going to be selling and redeeming a £100 card that has been bought for £100.
Transaction | Process | Example value (£) |
Sale of £100 card for £100 | Acknowledge sale | £100 |
| Recognise liability | £100 |
| Pay VAT | £16.67 |
Redemption of £100 card | Reduce liability | £100 |
| Recognise revenue | £100 |
Example process for a discounted gift card
In this example, we’re going to be selling and redeeming a £100 card that has been bought for £80. £20 of it has been given to the recipient for free.
Transaction | Process | Example value (£) |
Sale of £100 card for £80 | Recognise liability | £100 |
| Pay VAT | £13.33 |
| Assign cost of sale | £20 |
Redemption of £100 card | Reduce liability | £100 |
| Recognise revenue | £100 |
Example process for a gift card given free of charge
In this example, we’re going to be selling and redeeming a £100 card that has been given to the recipient for free.
Transaction | Process | Example value (£) |
Issuance of £100 card for £0 | Recognise liability | £100 |
| Pay VAT | £0 |
| Assign cost of sale | £100 |
Redemption of £100 card | Reduce liability | £100 |
| Recognise revenue | £100 |
How to account for gift cards if they are classed as MVPs, and your integrated redemption partner supports tender and discount at point of redemption.
Overview
As the items your gift cards can be redeemed on have varying VAT rates, this means that you’re selling Multi Purpose Vouchers. As a result, you pay VAT at the point of redemption of the gift card, not the sale.
Your integration recognises redemptions as tender (payment) and discount (what was given for free). Where you’re redeeming a card that was paid for in its entirety (100% tender), your VAT process does not differ from any other payment type that you handle.
Where it does differ, however, is redeeming cards that are entirely, or partially, made up of value that is given for free. You do not pay VAT on any proportion of the card value that was given for free, and so the reports from your redemption partner will report these as a ‘discount’, not tender.
Example process for a standard gift card
In this example, we’re going to be selling and redeeming a £100 card that has been bought for £100.
Transaction | Process | Example value (£) |
Sale of £100 card for £100 | Acknowledge sale | £100 |
| Recognise liability | £100 |
Redemption of £100 card | Reduce liability | £100 |
| Pay VAT | £16.67* |
| Recognise revenue | £100 |
*whatever tax rate it applicable on products purchased
Example process for a discounted gift card
In this example, we’re going to be selling and redeeming a £100 card that has been bought for £80. £20 of it has been given to the recipient for free.
Transaction | Process | Example value (£) |
Sale of £100 card for £80 | Acknowledge sale | £80 |
| Recognise liability | £100 |
Redemption of £100 card | Reduce liability | £100 |
| Pay VAT | £13.33* |
| Assign cost of sale | £20 |
| Recognise revenue | £80 |
*whatever tax rate it applicable on products purchased
Example process for a gift card given free of charge
In this example, we’re going to be selling and redeeming a £100 card that has been given to the recipient for free.
Transaction | Process | Example value (£) |
Issuance of £100 card for £0 | Acknowledge sale | £0 |
| Recognise liability | £100 |
Redemption of £100 card | Reduce liability | £100 |
| Pay VAT | £0 |
| Assign cost of sale | £100 |
| Recognise revenue | £0 |
How to account for gift cards if they are classed as SVPs, and your integrated redemption partner supports tender only at point of redemption.
Overview
As all items your gift cards can be redeemed on have the same VAT rate, this means that you’re selling Single Purpose Vouchers. As a result, you pay VAT at the point of sale of the gift card, not redemption.
Dealing with the VAT, and acknowledging any discounts on gift cards given at the point of sale makes the process at redemption easier. Your integration only recognises redemptions as tender (payment) no matter what the makeup of the card is. This is fine, however, as all discounts and proportional VAT are accounted for at the creation of that card.
Example process for a standard gift card
In this example, we’re going to be selling and redeeming a £100 card that has been bought for £100.
Transaction | Process | Example value (£) |
Sale of £100 card for £100 | Acknowledge sale | £100 |
| Recognise liability | £100 |
| Pay VAT | £16.67 |
Redemption of £100 card | Reduce liability | £100 |
| Recognise revenue | £100 |
Example process for a discounted gift card
In this example, we’re going to be selling and redeeming a £100 card that has been bought for £80. £20 of it has been given to the recipient for free.
Transaction | Process | Example value (£) |
Sale of £100 card for £80 | Recognise liability | £100 |
| Pay VAT | £13.33 |
| Assign cost of sale | £20 |
Redemption of £100 card | Reduce liability | £100 |
| Recognise revenue | £100 |
Example process for a gift card given free of charge
In this example, we’re going to be selling and redeeming a £100 card that has been given to the recipient for free.
Transaction | Process | Example value (£) |
Issuance of £100 card for £0 | Recognise liability | £100 |
| Pay VAT | £0 |
| Assign cost of sale | £100 |
Redemption of £100 card | Reduce liability | £100 |
| Recognise revenue | £100 |
How to account for gift cards if they are classed as MVPs, and your integrated redemption partner supports tender only at point of redemption.
Overview
As the items your gift cards can be redeemed on have varying VAT rates, this means that you’re selling Multi Purpose Vouchers. As a result, you pay VAT at the point of redemption of the gift card, not the sale.
Your integration only recognises redemptions as tender (payment)and does not report the value of the card that was given for free. Therefore, where you’re redeeming a card that was paid for in its entirety (100% tender), your VAT process does not differ from any other payment type that you handle.
Where it does differ, however, is redeeming cards that are entirely, or partially, made up of value that is given for free. You need to establish the value of the card that is split between tender and discount, and adjust the tender value that is being reported by your integrated partner.
To do this, use the ‘Balance adjustments’ report, and then follow these steps:
Find the redemption transaction you’d like to reconcile.
Use the ‘card unique code’ or the ‘card ID’ to see other transactions associated with that card.
Establish the previous makeup of the card between tender and discount by looking at the ‘Total associated transaction value’ and ‘Total associated discount value’ of each transaction associated with that card
Calculate the value of the redemption that would have used tender, and the value that would have used discount. Note: the discounted proportion of a card is redeemed first. This is relevant for partial redemptions.
If your integrated partner is Vita Mojo, you can request a report that shows you the tender and discount split of any Toggle card redemption redemption.
Example process for a standard gift card
In this example, we’re going to be selling and redeeming a £100 card that has been bought for £100.
Transaction | Process | Example value (£) |
Sale of £100 card for £100 | Acknowledge sale | £100 |
| Recognise liability | £100 |
Redemption of £100 card | Reduce liability | £100 |
| Recognise revenue | £100 |
Post-transaction reconciliation | Pay VAT | £16.67* |
*whatever tax rate it applicable on products purchased
Example process for a discounted gift card
In this example, we’re going to be selling and redeeming a £100 card that has been bought for £80. £20 of it has been given to the recipient for free.
Transaction | Process | Example value (£) |
Sale of £100 card for £80 | Acknowledge sale | £80 |
| Recognise liability | £100 |
Redemption of £100 card | Reduce liability | £100 |
| Recognise revenue | £100 |
Post-transaction reconciliation | Assign cost of sale | £20 |
| Pay VAT | £13.33* |
*whatever tax rate it applicable on products purchased
Example process for a gift card given free of charge
In this example, we’re going to be selling and redeeming a £100 card that has been given to the recipient for free.
Transaction | Process | Example value (£) |
Issuance of £100 card for £0 | Acknowledge sale | £0 |
| Recognise liability | £100 |
Redemption of £100 card | Reduce liability | £100 |
| Recognise revenue | £100 |
Post-transaction reconciliation | Assign cost of sale | £100 |
| Pay VAT | £0 |