, Retail
A homeware shop has a strong December. Takings are up 14% on the year before and the owner is looking at a bank balance she has not seen since she opened. In the middle of January her accountant points out that £11,400 of that came from gift cards, that none of it is revenue yet, and that a good proportion of it will walk back through the door in February and leave with stock she has already paid for.
The cash is real. The profit is somebody else's until they spend it.
The money is a liability until somebody redeems it
When you sell a gift card you have not sold anything. You have taken cash and promised to supply goods later at a value you have fixed today.
In your accounts that sits as deferred income, a liability on the balance sheet, and it moves to revenue only when the card is redeemed. If you treat gift card sales as December turnover you will report a December that did not happen and a February that looks far worse than it was, and you will pay tax on profit you have not made.
There is a cash flow consequence that runs the other way and is genuinely useful. Gift cards give you money now against a cost you incur later, which in a seasonal business is free working capital across exactly the weeks you need it. The danger is spending it as though it were yours. A shop that funds its January stock order out of gift card float is fine until redemptions arrive in a month when trade is thin.
The revenue recognition rules are tightening. FRS 102 has been through a periodic review, with amendments effective for accounting periods beginning on or after 1 January 2026 that bring in a five step revenue model closely aligned with IFRS 15. If gift cards are a material part of your business, that is worth a conversation with your accountant before the year it bites rather than after.
VAT depends on whether the card can only buy one thing
The voucher rules changed for vouchers issued on or after 1 January 2019, and they turn on a single distinction.
A single purpose voucher is one where the place of supply and the VAT liability of the underlying goods or services are both known at the time it is issued. A card that can only be redeemed against standard rated goods in your UK shop is a single purpose voucher. VAT is due when the voucher is issued, not when it is redeemed, and the later redemption is not itself a supply for VAT.
A multi purpose voucher is everything else. A card usable against a mix of standard rated, zero rated and reduced rate goods is multi purpose, because you do not know at issue what VAT rate will eventually apply. No VAT is due when you sell it. VAT arises when it is redeemed, on the goods actually bought.
That distinction has a practical effect on almost every general retailer, because a shop selling both standard rated goods and zero rated goods such as books or children's clothing is issuing multi purpose vouchers whether or not it has thought about it. It also means your till has to handle a gift card redemption as a payment method rather than as a sale, or your VAT return will be wrong in both directions.
Where a card is sold at a discount, or sold through a third party who takes a commission, the amounts get more involved. HMRC's guidance on vouchers is detailed for a reason.
Breakage is real money and you cannot just take it
Some cards are never redeemed. Industry practice is to call the unredeemed balance breakage, and for a business with a long trading history it is predictable enough to forecast.
You cannot simply write the whole balance to profit when you feel like it. Under a revenue model aligned with IFRS 15, breakage is recognised in proportion to the pattern of redemptions where you expect to be entitled to it, rather than in one lump at expiry. In plain terms: if experience says 8% is never redeemed, you release that 8% gradually as the other 92% is used, not all at once in month twenty-four.
Where you do not have reliable historic evidence, you hold the liability until the right to the consideration expires. A new scheme has no history, so a new scheme carries the full liability.
Two things distort breakage. Cards given as corporate gifts or staff rewards behave differently from cards bought by the public. And schemes with no expiry date accumulate a liability that never resolves, which sits on your balance sheet indefinitely and affects how a buyer values the business.
Expiry dates, consumer law and what happens if you fail
There is no UK statute setting a minimum life for a gift card. That does not mean you can set any period you like.
Part 2 of the Consumer Rights Act 2015 makes an unfair term in a consumer contract unenforceable, and the Competition and Markets Authority has taken an interest in gift voucher terms. A short expiry period, buried terms, or an inactivity fee that quietly drains the balance are all candidates for being found unfair. Twelve months is common and is on the aggressive end. Two years is more defensible. Whatever you choose has to be stated clearly at the point of sale, on the card itself and on your website, in language a customer reads rather than a clause they accept.
If you sell cards that can be spent somewhere other than your own shops, you may have left retail and entered financial services. The Payment Services Regulations 2017 and the Electronic Money Regulations 2011 contain a limited network exclusion for instruments usable only within a limited network of service providers or for a very limited range of goods. Your own shop chain fits. A scheme spanning a whole shopping centre or high street may not. Where the exclusion applies but the total value of transactions exceeds one million euros over twelve months, you must notify the Financial Conduct Authority. Outside the exclusion you need authorisation and you must safeguard customer funds, which is a different business entirely.
The last point is the uncomfortable one. If a retailer fails, gift card holders are unsecured creditors and generally get nothing, and administrators have often stopped accepting cards immediately or accepted them only alongside a cash purchase. That is a reputational risk you carry every time you sell one, and it is a reason to treat the float as somebody else's money in practice as well as in the accounts.
Where this shows up in the game
Shops are part of Business Baron's full game, and e-commerce is free to run. The game keeps the profit and loss account and the bank balance on separate screens, because they are separate things. A healthy balance in December is not evidence that the money is yours.