no, income would imply revenue where this arrangement is a reduction in the cost of purchases, not revenue.
If you cannot allocate against a specific cost then journal as a cost of sales or expenses general adjustment in a similar way to how you would treat a discount.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Many thanks for your reply. The invoice does indeed deduct the cashback leading to a reduction of total costs however the invoice comprises of Gas, electric, phones and internet so should i apportion the cashback between the expenses? Kind regards
I'm confused on what to say about this as I'm not sure on your exact situation. what i can say is that, as far as I am aware, you only reduce expenses when it's the actual supplier that gives you the cashback. If its an intermediary, like a credit card company, it's not the value of the purchase that is being reduced, you are receiving an inducement.
I'm sure someone will step up and elaborate further. I hope so as I'm interested to understand it more fully :)
-- Edited by FoxAccountancyServices on Tuesday 14th of May 2013 11:49:29 PM
the definition of Revenue is that it is the gross inflow of resources in the period arising from ordinary activities of the entity.
a cashback arrangement could not (to my mind) be perceived as revenue as it would not pass the test of being part of the ordinary activities.
My point earlier was that one should not recognise the amount as revenue but rather the cashback would be recognised as a reduction in the related expense in a similar way to the way that discounts are accounted for.
I am not really seeing the cashback as an inducement as the poster indicates direct correlation between the utilities expenditure and the refund.
The likelyhood is that the amounts we are talking about here will be very immaterial but talking principles rather than the specific case in this scenario I would enter a reverse expense to the value of the refund but shown seperately rather than offset.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
My confusion in what to say, was down to the OP using the word invoice not statement. And, because I am not aware of any supplier offering telephone and broadband as well as gas and electricity. But that could be my ignorance, so my comment is just another offering so the OP could weigh up the situation.
9.4 Cash backs provided by an intermediary for telecommunications services This can occur when an intermediary arranges for a customer to be signed up with a telecommunications provider and, as an incentive, the intermediary provides line rental reimbursement to the customer after a period of time. The customer produces bills as evidence and the intermediary provides a cash back. As the intermediary is not providing the phone service, the cash back cannot be treated as reducing the consideration payable by the customer for that service. The intermediary cannot make any VAT adjustments in these circumstances. The payment is an inducement and does not reduce the consideration paid by the customer to the intermediary.
In this case, I was told to post the cashback as other operating income, with no vat.
Whether its the case for the OP, that they are dealing direct with a supplier, or with an intermediary, is no doubt going to come to light when they next post :)
I guess another possible clue to the OPs situation could be whether the cashback results in an adjustment to the vat as well? If the value of the service has fallen, the vat would too? That's how I am reading HMRCs notes.
My confusion in what to say, was down to the OP using the word invoice not statement. And, because I am not aware of any supplier offering telephone and broadband as well as gas and electricity. But that could be my ignorance, so my comment is just another offering so the OP could weigh up the situation.
Whether its the case for the OP, that they are dealing direct with a supplier, or with an intermediary, is no doubt going to come to light when they next post :)
If it's the company I'm thinking of (Utility Warehouse) they do indeed offer the whole lot on one invoice. Cashback is achieved by having a prepaid debit card and, depending where you use it, can receive a small percent cashback offset against the utility invoice. It is utility warehouse who give the cashback, based on the amounts they receive back from the shops concerned, so I would agree with Shaun's analysis.
From memory I think it does reduce the VAT, but it's a long time ago that I last saw one of their invoices, so don't quote me
If it is Utility Warehouse that also provides the electricity etc, then yes, Shaun is correct. I was under the understanding that companies like Utility Warehouse gain commissions for sending customers to the energy provider (EDF, British Gas), and that they use cashbacks as an incentive to get people using their card (so UW is giving the cashback, not the energy provider).
Shaun is also correct if the cashback is actually a discount given by the energy provider to the customer...
That's my understanding of the law, but without seeing the information for myself, its impossible to confirm what is the correct treatment.
