Accounting for Loyalty Programs, Vouchers and Gift Cards

When a customer buys a SAR 500 gift card, or earns loyalty points on a purchase, you have taken in cash but you have not yet delivered any goods or services.

Booking that amount as revenue straight away inflates your profit by a sum you still owe the customer in the form of future goods. The correct treatment separates the cash received from the revenue earned, so you never recognize profit before you have delivered what you promised.

The core principle is simple. Anything you collect in exchange for a promise of goods or services later is a liability (deferred revenue) on your balance sheet, not revenue in your income statement.

• At the point of sale: cash increases, and the gift card / loyalty point liability increases with it.

• At the point of redemption: the liability falls, and the matching revenue is recognized.

Profit then lands in the period in which the customer actually consumes the value, not on the day the cash arrived.

A gift card is the simplest case:

• On sale: the full value is recorded as a deferred liability.

• On redemption: the redeemed value moves out of the liability and into revenue, and the matching cost of goods sold is recorded against it.

Promotional vouchers (SAR 50 off the next order) work differently. No cash changes hands, so they are treated as a reduction of revenue when they are used, not as a cash liability.

Loyalty points are harder, because they are granted inside a sale. The modern rule splits the sale value between the goods sold today and the points granted — a deferred liability at the fair value of the points expected to be redeemed.

Example: a SAR 100 sale grants points with an expected value of SAR 5. You recognize SAR 95 as revenue now, and SAR 5 as a loyalty liability that becomes revenue when the points are redeemed later.

A share of gift cards and points is never redeemed — this is known as breakage. Carrying it as a liability forever is not acceptable.

• If you have a reliable historical pattern for the non-redemption rate, you recognize the breakage share as revenue in proportion to customers redeeming their balances.

• Otherwise, you recognize it when the card expires or the obligation lapses in law.

Ignoring breakage leaves your liabilities inflated with phantom balances that will never be spent.

A store sold a SAR 300 gift card:

• On sale: cash 300, gift card liability 300 — no revenue yet.

• The customer later spends SAR 200: liability −200, revenue +200, and cost of goods sold is recorded.

• SAR 100 is left, and experience says 10% is never used: the breakage share is recognized gradually.

The result: revenue shows up with each actual redemption, not in one lump on the day the card was sold.

VAT timing depends on the nature of the instrument:

• A multi-purpose gift card (spendable on items carrying different tax rates): tax is usually due on redemption rather than when the card is sold, because the item is not yet known.

• A voucher for a specific item with a known tax treatment: tax may be due on sale.

Check how the Zakat, Tax and Customs Authority (ZATCA) rules apply to your own case. Confusing the two is a common source of discrepancies in the return.

In Snad, issuing a gift card or granting a points balance is recorded automatically as a deferred liability rather than revenue, and every balance stays linked to its customer.

On redemption at the point of sale, the system moves the redeemed value from the liability into revenue and records the cost of goods and its tax at the right moment. Your profit and your liabilities are stated correctly, with no complicated manual workings.