Given the Christmas season is fast approaching (let’s face it, it approaches from New Year’s, Easter at the latest!), many people consider giving gift vouchers as Christmas gifts. It can be a great way for your business to make additional money by having a voucher(s) available. However, like anything in business, there are some business and legal considerations (like gift voucher expiry dates) which you need to follow to ensure you don’t run into problems.
Please note we are not lawyers or accountants, so please check any accounting, tax or legal considerations with your trusted advisors. This blog refers to NSW, Australia law, but it still may be worth a read outside NSW so you know what to look for, and look up your own legal, tax and accountant requirements.
Vouchers can also help during lockdowns (in case it happens again)
During Covid lockdown some businesses were still able to retain some cash flow while being fully shut down by offering gift vouchers. Having vouchers ready to go 24/7 is therefore a good idea to help you keep cashflow coming in the door. It won’t even effect any turnover reduction calculations in Australia as the sales are not recorded on your activity statement until the voucher is redeemed (refer ATO information below).
Did you know there are laws about gift voucher expiry dates and gift voucher use?
From March 2018 NSW Fair Trading enforced law which required gift voucher recipients to have three year expiry date validity on all full priced gift certificates, gift cards and gift vouchers. When the law came into effect, technically it applied not only to NSW resident businesses, but also to businesses offering gift vouchers to those living in NSW when the business was outside NSW. This also raises the ugly thought, does this mean we need to look at the laws for every jurisdiction we sell gift vouchers too? With a truly global economy I really hope all these things get sorted out!
This was followed 1 November 2019 by an Australian wide ACCC Australian Consumer Law (ACL) requirement to offer 3 year gift voucher expiry periods. This was largely the same but added an additional requirement to ensure the expiry date or the issue date and validity term was clearly stated on the gift card or gift voucher.
Where will your business be in 3 years?
So if you need to provide a 3 year expiry, it is wise therefore to think about where your business will be in 3 years time. Will you still be open? Would you still be offering the same products and services? What about the price? It may therefore be better to offer a dollar value gift card or gift voucher, rather than a voucher for a specific service or product. That way if a product becomes obsolete or prices do increase markedly, you’re not providing a say $200 service using a gift voucher purchased for $100.
What about donating a gift voucher or gift certificate to a school or not for profit (NFP) or giving away as a free gift voucher with purchase?
If you give a gift voucher as a donation, say at a school raffle, you do not need to provide 3 year expiry. You could also offer say a free $20 gift voucher with purchase. As it is free, the 3 year expiry doesn’t apply. However, make sure you display clear terms and conditions for the use of the gift vouchers in these scenarios.
Are you selling heavily discounted vouchers or gift vouchers?
When selling heavily discounted vouchers then the three year validity does not need to apply. For instance, ThePhotoBookClub who we purchased our Tea Time Tip mugs from, regularly have heavily discounted vouchers, and therefore only offer a six month expiry. I like their practice though, where you can pay a small fee to revalidate an expired voucher (in case you got too busy to use it!). Note you cannot charge fees to redeem a full price voucher within the expiry period.
If you’re thinking of discounting, please make sure you consider the impact on your business pricing. Our Tea Time Tip 5 was Should I offer a discount. You can check out the video or blog for free via our website, or can access via the online school (VERY SOON) including slide pack and calculation sheet.
Set up a gift voucher holding account
It is wise to set up a holding account for the gift voucher money. When you receive the money as people buy the gift vouchers, transfer the money to the holding account. On redemption, transfer the GST (if you’re GST registered) to the GST account as it will be then be payable with the next BAS. As the gift vouchers are redeemed, take the net of GST money from that account back to your main account and record. https://www.ato.gov.au/business/gst/in-detail/rules-for-specific-transactions/gst-and-vouchers/
This is especially important where you pay a reasonable amount of expenses to fulfil a voucher. Whether in staff wages or in product or supply cost to offer each product, service or package. There will be limited need to repay a customer for a gift voucher, but it’s also there ‘just in case’. If you closed up shop for instance, that could be a valid reason.
Gift vouchers terms and conditions
Like expiry dates, there are some legal limitations into the conditions you can impose. Please make sure you read through the links below or find the equivalent (if anything) for your jurisdiction. Make sure you state what happens if the full amount of the voucher is not redeemed. Will you pay out the change in cash, store credit or as a lower value gift voucher? You can also include certain restrictions like a voucher may not be valid Friday and Saturday nights. If you do something like this, and the voucher is still at or near full value, make sure you are crystal clear before purchase and on the gift voucher or you could encounter a backlash! You may also limit the number of vouchers which can be used together.
For gift voucher law and information please refer to the NSW Fair Trading and ACCC links below.
Outside NSW and Australia, please refer to your local state or Country consumer laws.
Ideas for gift vouchers
Think of who your buyers will be for these gift vouchers. Make special vouchers for people to give as gifts to thank their friends, referral partners or business friends. Make birthday oriented vouchers or of course, special occasions like Mothers Day or Christmas.
Should you offer monetary value, or product/service based vouchers? Consider whether a 3 year expiry date validity is required. If it is, you’re probably safer to offer a $ value gift voucher rather than a product or service. You risk you no longer offer in 3 years at the same price, or the item may become obsolete.
How to create gift vouchers using a gift vouchers template
You could go to a graphic designer and get them to create gift vouchers customised for your business. For a cheaper option, using a tool like Canva is very simple. You can create a well-designed voucher using a gift vouchers template. If you are going to print the voucher make sure it is downloaded as print quality and ideally in the CMYK colour space which is preferred by printers.
Coupon codes for use on an eCommerce store
Your eCommerce solution may allow you to produce multi-use or single-use codes to use on your website. Remember multi-use codes could end up in anyone’s hands. There are sites which scrape them and put them on their websites (to generate ad revenue). Single-use codes can be generated in bulk using CSV files. Make sure you can handle the distribution of these in an automated way. Use a system or even using something like a mail merge in Word, unless you’re only issuing a small number.
Gift voucher and gift card security
The credit card like gift cards often come with a scratch off passcode or need to be activated before use. Remember this when thinking about your small business gift voucher security. If offering e-vouchers, do not make the voucher available as a PDF on your website. It can easily be found by those in the know and printed. Also for security, recommend including a reference number that can be tied back to a register in case of any issues. Remember vouchers are valid 3 years, you probably won’t remember what was a legitimate purchase or not.
Require recipients to register their gift voucher
You may want to encourage people to register their gift voucher (not mandatory). This could be marketed if they lose their voucher, no worries they can still use it, as it is registered. This provides a layer of security and allows you to communicate to your potential new customer.You could have a short form or similar on your website. Include asking permission to email them. You could then send friendly reminders to use the voucher.
Marketing your gift vouchers
A great way is to market gift vouchers to your existing clients. They may request them as a gift idea for themselves from their partner or family. Alternatively, they may buy gifts for their friends and family. After all, if they love you wouldn’t they want to share the love? Include gift voucher links in your emails, on your website and on your socials. You can use all your usual marketing techniques to target to a cold audience/new prospects
Gift vouchers for cashflow
As suggested I would store gift voucher income in a separate account. You could use this account occasionally to help with temporary cashflow fluctuations. Like any loan, as long as if you take $1000 out, you put the $1000 back in! Why keep the gift voucher money separate? When they are redeemed you will physically be providing the products or services. At that time you will incur the expenses to deliver. You need to be able to cover those expenses with no additional income at the time.
Deal sites – a warning
There were a number of small businesses when the discount company places took off which went broke. (BY deal sites we mean Cudo, Living Social, Scoopon and Groupon etc). The businesses thought the deal sites were a great way to get quick money. Not only did they offer a big discount say 50%, they were also paying the deal company around another 30-50%. They had no 3 year expiry requirement. There was no legal requirement at the time and wouldn’t be now due to the heavy discount. These businesses were bust within the 6 months of deal validity. Why? Because they filled their salons etc with clients using prepaid heavily discounted vouchers. Therefore they couldn’t book any/many full-price paying customers. They didn’t receive enough at the start or anything at the service delivery time to cover their actual expenses.
If you are buying gifts for business use – are gift cards tax deductible?
Yes, in Australia gift cards for clients or employees are tax deductible as long as they are non-entertainment. If you were buying a voucher to cover the cost of Christmas Dinner it could be considered entertainment and not tax deductible. For staff, FBT can apply unless you keep under the $300 minor benefits exemption limit.
Again outside Australia please check your own countries limitations. Inside please check our interpretations with the ATO or your accountant.
In summary gift vouchers can be great
Gift vouchers can be a great way to attract new clients. Particularly if someone who loves your service buys it for their friends or family for their special occasions. Gift vouchers can provide a valid income stream. However, be wary of compulsory 3 year gift voucher expiry dates for full price vouchers. It does create some issues for small businesses. Please make sure you address these issues before offering gift vouchers or gift certificates.