Does cashback cost the vendor money?
Discussion
I only mean in cases were cashback isn't offered within the card machine/epos system, for example:
One country pub I go to will let you buy £5 of drinks, pay £20 by card (credit or debit) and then give you £15 cash out of the till as change. £20 is rung through the till as a purchase, no cashback option selected anywhere.
Likewise at a wine bar I play poker at, you can ask for '£20 cashback' on top of your bill (again credit or debit card), it will just be rung through as a purchase, no separate section showing cashback like you get at supermarkets.
Am I right in thinking this will be costing the business 20%(?) as they will, presumably, have to pay VAT or tax of some kind on most/all of their income? As the 'cashback' is just rung through the till as a purchase won't it be 'income' and therefore taxable?
Just curious!
One country pub I go to will let you buy £5 of drinks, pay £20 by card (credit or debit) and then give you £15 cash out of the till as change. £20 is rung through the till as a purchase, no cashback option selected anywhere.
Likewise at a wine bar I play poker at, you can ask for '£20 cashback' on top of your bill (again credit or debit card), it will just be rung through as a purchase, no separate section showing cashback like you get at supermarkets.
Am I right in thinking this will be costing the business 20%(?) as they will, presumably, have to pay VAT or tax of some kind on most/all of their income? As the 'cashback' is just rung through the till as a purchase won't it be 'income' and therefore taxable?
Just curious!
When I worked in a pub, we were allowed to give cash back of any value - we just plugged it in to the card machine for whatever amount and gave change as I think you suggest.
Then we got a new card reader, which asked if the customer wanted cash back. The boss said saved a s
tload of money for the company. I was unconvinced, as I thought sales would be measured by what went through the till in terms of stock.
I can't remember what his actual explanation was - might well have been hammered at the time...
Then we got a new card reader, which asked if the customer wanted cash back. The boss said saved a s
tload of money for the company. I was unconvinced, as I thought sales would be measured by what went through the till in terms of stock.I can't remember what his actual explanation was - might well have been hammered at the time...
simoid said:
I'm sure I'm missing a step.
You ask for a bottle of beer, bar staff puts that into till, till asks for £3, you give it £20 in the form of your decrepit from the card reader, and the till knows it's giving out £17 change?
As I said, I was just a monkey. I ground no organs
With both the places I mentioned, the till and card machine are not connected, so you ask for £3 beer, say 'can you charge me £20 and give me the change in cash' and then they manually type £20 into the card machine, then just open the till and give you your change. As far as I can see there is no paper trail their end to show that and cash back has been given, only that a single transaction of £20 took place.You ask for a bottle of beer, bar staff puts that into till, till asks for £3, you give it £20 in the form of your decrepit from the card reader, and the till knows it's giving out £17 change?
As I said, I was just a monkey. I ground no organs
Think of it this way. (assuming business tax is 10% for the purpose of this explanation).
Business A tots up the days takings, they have had £500 through the till as purchases and have given £500 cashback using the cashback option on the card machine, therefore they owe £50 tax for the day.
Business B tots up the days taking and has £1000 through the till, as they don't have a 'cash back' option on the till/card machine they have no idea how much of the £1000 takings were cashback transactions, therefore tax man see's all £1000 as 'income' and charges them £100 tax for the day. (even though half of the 'takings' were given straight back out in the form of cashback)
Wacky Racer said:
I think large supermarkets like to give cashback because it gets a lot of cash off the premises, in case of a robbery.
I may be wrong though.
I would be surprised if that is the reason, as it will all be insured anyway. I would have thought it was more as a convenience for customers.I may be wrong though.
My local Tesco extra do not do cashback on any of their tills because they have 2 'free to use' cash machines outside the main entrance.
Wacky Racer said:
I think large supermarkets like to give cashback because it gets a lot of cash off the premises, in case of a robbery.
I may be wrong though.
Almost right, the robbery being performed by the bank, in "cash handling" fees. The less cash they pay in, the lower the bank charges.I may be wrong though.
Pet Troll said:
With both the places I mentioned, the till and card machine are not connected, so you ask for £3 beer, say 'can you charge me £20 and give me the change in cash' and then they manually type £20 into the card machine, then just open the till and give you your change. As far as I can see there is no paper trail their end to show that and cash back has been given, only that a single transaction of £20 took place.
Think of it this way. (assuming business tax is 10% for the purpose of this explanation).
Business A tots up the days takings, they have had £500 through the till as purchases and have given £500 cashback using the cashback option on the card machine, therefore they owe £50 tax for the day.
Business B tots up the days taking and has £1000 through the till, as they don't have a 'cash back' option on the till/card machine they have no idea how much of the £1000 takings were cashback transactions, therefore tax man see's all £1000 as 'income' and charges them £100 tax for the day. (even though half of the 'takings' were given straight back out in the form of cashback)
The bar might measure how much is sold - most (all?) chain pubs do this on the till, ie everything is on the till. If someone asked me for a bottle of Bud, I'd find it on the till, ask for £3, then press "pay". Our card machine was as you describe - it basically phones the card owners and asks for money, and the receipt is proof of this.Think of it this way. (assuming business tax is 10% for the purpose of this explanation).
Business A tots up the days takings, they have had £500 through the till as purchases and have given £500 cashback using the cashback option on the card machine, therefore they owe £50 tax for the day.
Business B tots up the days taking and has £1000 through the till, as they don't have a 'cash back' option on the till/card machine they have no idea how much of the £1000 takings were cashback transactions, therefore tax man see's all £1000 as 'income' and charges them £100 tax for the day. (even though half of the 'takings' were given straight back out in the form of cashback)
(Despite having this sales measurement, the boss said cashback meant a higher tax bill.)
Those free cash machines that places have earn the premises money; the business fills the machine which suits both parties as it secures the cash, transfers any theft liability to the cash machine company and it puts the money into the business's bank account without any fees being charged by the bank. The cash machine business benefits as it doesn't have to keep it's machines filled itself. The premises then receive commission on withdrawals. That is why you come across places that don't take cards, but have a cash machine on site instead.
I presume somewhere in the chain the banks are subcontracting their desire to make cash available to these third parties as otherwise I don't see where the machine operators make money.
Cashback will work roughly the same way, it's cash off the premises which saves paying a banking fee for paying it in. I don't know if there's commission paid in the same way, but it wouldn't surprise me. If it cost the vendor money they wouldn't do it.
The cashback isn't turnover, so there's no tax implications.
I presume somewhere in the chain the banks are subcontracting their desire to make cash available to these third parties as otherwise I don't see where the machine operators make money.
Cashback will work roughly the same way, it's cash off the premises which saves paying a banking fee for paying it in. I don't know if there's commission paid in the same way, but it wouldn't surprise me. If it cost the vendor money they wouldn't do it.
The cashback isn't turnover, so there's no tax implications.
Pet Troll said:
With both the places I mentioned, the till and card machine are not connected, so you ask for £3 beer, say 'can you charge me £20 and give me the change in cash' and then they manually type £20 into the card machine, then just open the till and give you your change. As far as I can see there is no paper trail their end to show that and cash back has been given, only that a single transaction of £20 took place.
The card machine prints two receipts. You get yours and the business gets one too. Theirs is placed in the till (regardless of cashback or not) and is included in the totals when they cash up at the end of the day.Low-tech but it works.
Debit cards tend to be a fixed price per transaction, so the pub pays the same fee whether you buy £5 of beer or £5 of beer + £15 of cashback.
Their till is down by the amount of the cashback, so tax and profit are unaffected.
They minimise their bank's cash handling charges.
Credit cards tend to be a percentage of transaction value so £10k of cashback on a credit car would cost the pub a couple of hundred... so that's not going to happen.
Their till is down by the amount of the cashback, so tax and profit are unaffected.
They minimise their bank's cash handling charges.
Credit cards tend to be a percentage of transaction value so £10k of cashback on a credit car would cost the pub a couple of hundred... so that's not going to happen.
CYMR0 said:
Debit cards tend to be a fixed price per transaction, so the pub pays the same fee whether you buy £5 of beer or £5 of beer + £15 of cashback.
Their till is down by the amount of the cashback, so tax and profit are unaffected.
They minimise their bank's cash handling charges.
Credit cards tend to be a percentage of transaction value so £10k of cashback on a credit car would cost the pub a couple of hundred... so that's not going to happen.
I'm not talking about formal cashback. I'm talking about formal 'cashback'.Their till is down by the amount of the cashback, so tax and profit are unaffected.
They minimise their bank's cash handling charges.
Credit cards tend to be a percentage of transaction value so £10k of cashback on a credit car would cost the pub a couple of hundred... so that's not going to happen.
I used to live near a pub that had a rule saying no cards unless spend is over £20. But they would take my card for a single beer, charge £20 on the card and give me £16odd change from the till.
So I was getting 'cashback' from a credit card.
What I don't understand is that surely in that scenario, the pub would pay more in credit card fees than they would if they just took the card for the £4 beer?
oyster said:
I'm not talking about formal cashback. I'm talking about formal 'cashback'.
I used to live near a pub that had a rule saying no cards unless spend is over £20. But they would take my card for a single beer, charge £20 on the card and give me £16odd change from the till.
So I was getting 'cashback' from a credit card.
What I don't understand is that surely in that scenario, the pub would pay more in credit card fees than they would if they just took the card for the £4 beer?
Yes, but how much of the £16odd did you give back to them later in the night?I used to live near a pub that had a rule saying no cards unless spend is over £20. But they would take my card for a single beer, charge £20 on the card and give me £16odd change from the till.
So I was getting 'cashback' from a credit card.
What I don't understand is that surely in that scenario, the pub would pay more in credit card fees than they would if they just took the card for the £4 beer?
Mainly the above point but if you're only spending £4, you're creating a queue for other customers, especially if you're doing that multiple times per night.
Spend £4, get £16 cashback, and you'll be getting out the card machine only once, hence less queueing.
Additionally, they've paid a card fee but have saved a cash handling fee, which might help, especially if there is a minimum cost per transaction (e.g.., rather than paying 2% of £4 they pay a minimum of 20p per transaction, then 2% on everything above £10).
Spend £4, get £16 cashback, and you'll be getting out the card machine only once, hence less queueing.
Additionally, they've paid a card fee but have saved a cash handling fee, which might help, especially if there is a minimum cost per transaction (e.g.., rather than paying 2% of £4 they pay a minimum of 20p per transaction, then 2% on everything above £10).
Mr Will said:
oyster said:
I'm not talking about formal cashback. I'm talking about formal 'cashback'.
I used to live near a pub that had a rule saying no cards unless spend is over £20. But they would take my card for a single beer, charge £20 on the card and give me £16odd change from the till.
So I was getting 'cashback' from a credit card.
What I don't understand is that surely in that scenario, the pub would pay more in credit card fees than they would if they just took the card for the £4 beer?
Yes, but how much of the £16odd did you give back to them later in the night?I used to live near a pub that had a rule saying no cards unless spend is over £20. But they would take my card for a single beer, charge £20 on the card and give me £16odd change from the till.
So I was getting 'cashback' from a credit card.
What I don't understand is that surely in that scenario, the pub would pay more in credit card fees than they would if they just took the card for the £4 beer?
I used the credit card again for a further £20 'cashback'.
condor said:
I doubt if you get cashback anywhere on a credit card as they charge a percentage fee to the vendor on the amount rather than a low cost fixed fee (approx 30p per transaction)that a debit card charges.
I've had cashback at 2 or 3 pubs over the years. Once or twice I didn't even buy anything (I was known as a previous customer though). So it does happen. And on my statement it appeared as a purchase.Gassing Station | Finance | Top of Page | What's New | My Stuff