Vouchers and VAT!!!!! Be careful with your PROFIT!!!

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Vouchers and VAT!!!!! Be careful with your PROFIT!!!

Postby Jaeger » Sat Jun 16, 2007 4:04 pm

Hi,
I've covered the processing of vouchers before (see here http://www.eziforum.com/BB/viewtopic.php?t=977 ) and have been running vouchers that way until now, as I've just realised how they affect the VAT collected.

The Flat VAT Rate (01) in the UK is 17.5%

When we sell an item at a final sale value of say £117.50. Paid by Cash, Credit Card or Debit Card or Cheque. (out of that the VAT man wants £17.50). Yes?

When we sell an item at say £117.50 and give a discount of 10%, the final sale value is = £105.75 (out of that the VAT man wants £15.75).

That seems fair and reasonable? Well OK it's the law and that's that.

But lets have a look at what happens if we accept a Voucher as part payment for the same transaction.

When we sell an item at a final sale value of say £117.50 and accept payment of a £5 Gift Voucher and £112.50 in cash/cheque/ Credit Card/Debit Card,
The Vat man still wants his £17.50. Yes? That's because the Final Sales value is £117.50, how you get paid/take payment is between you and your customer.

So we are now using an Item Code (for us it's called Birthday Money) it's a Service item and it has a negative value of -£5.00, that way the sale total is £112.50 and the vat man only gets £16.76

Now on 1 sale this may seem a little penny pinching (but I'm Scottish so I don't) but when you add it up over the year it soon mounts up so much so that we have issued and had redeemed over £2,000 worth of Birthday Money this last year. Now that equates to just under £300! That would pay my phone bill for a quarter!

Hope this helps you deal with Vouchers that you issue in an effort to encourage customers return and loyalty.

The Loyalty Point Vouchers (Store Vouchers) issued by Retail Man will be dealt with as a form of payment and you will still suffer the VAT content of the original Final Sale value. Maybe there’s a way to look at this for the future Sami?
Jaeger
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Re: Vouchers and VAT!!!!! Be careful with your PROFIT!!!

Postby annette49 » Thu Nov 18, 2010 8:09 am

If I am not mistaken, what I had understood in your article is that to be very aware of our profit despite of the discount we get from vouchers. As a starter in a business, I see this to be a useful and helpful warning. This will urge me scrutinize all the details of the promo.

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