Feature Request: Fix the incorrect way VAT is managed on Gift Cards

[nell_a]

Hi @tranguyen 

Here's an interesting one regarding tax (if tax can ever be interesting!)

We use Gift Cards to issue free credit to customers. This might be out of goodwill, or we are running a promotion. Either way, we manage this in Dashboard > Gift Cards > Promotions. 

The problem is that when the Gift Card is redeemed Square records VAT due on the sale at the item's defined VAT rate even though it was tendered using a Gift Card that was awarded to the customer for free. In some cases, it might be that a Gift Card contains part free credit and part paid credit, i.e. that's credit given away for free and credit purchased using money. 

VAT is due when the Gift Card is purchased, apparently, not redeemed however Square currently does not work in this way. This means VAT is deferred until the point the gift Card is redeemed and in the case of Gift Cards which have been awarded for free (either out of goodwill or in a promotion) the VAT is incorrectly being recorded as due when in fact it never should be. 

These issues are highlighted further in the Square Amaka integration, which is very good overall, but in this one key area it also incorrectly records the level of VAT due on sales tendered using Gift Cards given to the customer for free.

The fix is to track any part of Gift Cards that are of this free credit type and when it is redeemed is to apply an appropriate zero or no tax rate on that part of the sale. And when a Gift Card is purchased using money, to record the VAT on that sale and not on the sale when it is redeemed.

Thank you.

[Valentina]

Thank you for your input here, @nell_a!

I'll be sure that @tranguyen has a chance to take a look at this thread when she's back next week, as she may be able to speak better to how Square handles VAT as it relates to Square Gift Cards in the UK.

[tranguyen]

Hey @nell_a, thanks for your the thorough explanation! To make sure I understand it right, you want to make sure that VAT won't apply to items when customers are paying with a Gift Card, is that correct? And that it would be preferable for us to apply VAT to the Gift Card purchase instead? 

I'd love to share this with the wider teams to get their thoughts and see if there might be some workaround we can apply in the meantime. Are the customers paying via invoices, through a website or the Square Point of Sale app? Depending on how they complete their purchases, we might have some alternatives. 

[nell_a]

Hi @tranguyen 

Yes, that is correct, VAT should not be applied to the sale of items which are paid for with a Gift Card.

This is a fundamental issue regarding correctly recording of tax dates and amounts due. It is an HMRC requirement to record VAT to the sale of Gift Cards and not when then are redeemed. In the current setup, VAT is being recorded at the wrong time and being overstated (in the case of Gift Cards being issued to the customer for free and then redeemed later in a sale).

Our customers currently pay using invoices, however, we have to issue Gift Cards using POS as Invoices does not support this.

Thank you   

[tranguyen]

Thanks for taking the time to share this @nell_a! I've shared this with the relevant team so we can look into this further. When I have more information or an update from the team, I'll be sure to follow up on this thread.

[nell_a]

Hi @tranguyen 

What is the response from the relevant team on this topic? I'd be interested to know what their views are.

Thank you.

[Ruby4]

I’m also thinking about introducing Square Gift Cards into our business but am concerned when VAT will actually be ‘implemented’ either at the purchase of a gift card or at the time of redemption of the gift card. We deal with both 20% vat items as well as 0% vat items. We also use the Amaka integration with Xero so need to know how it tracks in both Xero and Square. Any updates?

[k_atie]

Hey @Ruby4, thank you for your comment. We don't have any news to share about this feature as of yet, but we'll be sure to make your comment known to our team. Once we do have an update about this feature, we'll be sure to update this thread accordingly. 

[nell_a]

Hi @k_atie 

Thank you for your latest response from @Ruby4 however, can we please have a fuller response from the appropriate team at Square on this topic? It's been over two years and there has been none. It is an important matter regarding tax and sellers need to make sure they are compliant with local tax laws. 

There might be a simple explanation why the current design is fit for tax governance as it stands, or a change may need to be implemented to make it so. If it is the latter it would be good to know when this will come.

Thanks

[julia1610]

Is there a final answer on this question and as we are pondering how to deal with gift card sales too