I work in a small retail shop and we have a card system that allows customers to deposit money on a shop card. This is all tracked via our epos system. How do we account for the money going on and coming off the card in Quickfile? Is the prepayment classed as zero rated for VAT purposes? And then how do we account for any VAT on the purchases made against that card? At the end of year most of our customers will have money left on their cards - again epos will tell us how much but where/how do we account for this in Quickfile?
Any help greatly appreciated.
Is this basically the same as a gift voucher system? You’re not making any additional profit on this, just letting people put money on a card now and then spend the same amount later?
If so then the VAT treatment would depend on whether or not the customer topping up their card has a choice of items they can spend the cash on that attract different rates of VAT, and whether the card is limited to use only by the holder or whether someone can theoretically buy one of these cards, put some cash on it, then give the card as a gift for someone else to spend the balance. The key thing is whether or not the card counts as a voucher, and if it does then whether that voucher is single or multi purpose.
If the card isn’t a voucher at all (e.g. if it can’t be transferred from one person to another), or if it is a multi-purpose voucher (redeemable for goods at a mixture of different VAT rates, and you can’t know when they make the top-up payment exactly which VAT rates the money will ultimately be spent at), then there’s no sale at the time of top-up and no VAT due - deduct the top ups from your EPOS Z reading and treat them as a bank transfer from a special bank account (call it something like customer balances holding account) to the relevant account for however the customer paid (the cash or card holding account, as you would for a normal sale)1. When they spend their balances, treat it as part payment towards the normal sale (so payment in to the same holding account) so you account for VAT on whatever they bought with the credit at the time they spent it. At any given time the holding account balance should be overdrawn by the total unspent balance across all the cards in circulation.
However if it falls under the definition of a single-purpose voucher (redeemable by anyone, and all goods that can be bought with it are subject to the same rate of VAT) then VAT is due on the voucher value at the time the voucher is issued, but not when it is redeemed. In that case you’d treat the top up as a normal sale at the normal VAT rate, and the spending of the resulting credit as a discount off the goods they’re spending it on (reducing the total they have to actually pay).
1 I’m not an accountant but I had to learn all this in detail when I started selling gift vouchers in my own retail shop. When I have a Z read that includes the sale of some gift vouchers, what I do is deduct the value of the vouchers sold from the invoice I create in QuickFile for the Z read, but apply the payments in full in the normal way. This leaves at least one of the payments as part-unallocated corresponding to the value of the vouchers, and I then “refund balance” for this payment against the gift vouchers holding account to register the liability.
Thank you very much for a very comprehensive answer. I would say the cards are very similar to a voucher. People would top-up their card and wouldn’t be able to transfer the money from one card to another. The card would be redeemable against any item in the shop hence a mixture if different VAT rates. I need to delve a bit deeper into our z reports. Thanks again for the pointers