Last updated: 14 October 2026
How is VAT treated on cashback?
It depends on who pays the cashback and to whom. When a manufacturer pays cashback directly to a consumer, the manufacturer can reduce its output VAT, because the value of its original sale has been reduced. The retailer who sold the goods doesn’t change its VAT. When a retailer gives cashback on its own sales, it’s a discount that reduces the retailer’s taxable sale. Cashback from card providers or cashback websites to consumers is normally outside the scope of VAT for the consumer.
Common cashback situations
| Situation | VAT effect |
| Manufacturer pays cashback to the end customer | Manufacturer reduces output tax (the “Elida Gibbs” principle) |
| Retailer pays cashback on its own sale | Retailer’s sale value is reduced; account for VAT on the net price |
| Supplier pays a volume rebate to a VAT-registered retailer | Usually a reduction in the price of the original supplies; issue or receive a credit note |
| Cashback website pays a consumer | Outside the scope for the consumer |
| Bank or card cashback | Outside the scope |
| Car dealer offers cashback on a new car | Reduces the sale value if paid by the dealer |
The Elida Gibbs principle
In the Elida Gibbs case, the European Court ruled that a manufacturer that refunds part of the price to the final consumer has received less for its supply, so it can reduce its output tax. UK law still reflects this, and HMRC accepts adjustments where the manufacturer has evidence of the payment.
Rebates between businesses
If a supplier pays a retrospective volume rebate, it’s normally treated as a price reduction. The supplier reduces its output tax and the customer reduces its input tax. Both should keep credit notes or a rebate agreement that clearly shows the VAT.
When cashback is a payment for a service
Sometimes a “cashback” is really a payment for something the retailer does, such as advertising or a promotional display. That payment is consideration for a taxable service, so the retailer must charge VAT on it.
Example
A manufacturer sells a washing machine to a retailer for £300 plus VAT and runs a £60 cashback offer to consumers. When it pays £60 to a customer, it reduces its output tax by £10 (£60 × 1/6). The retailer, who sold the machine to the customer for £480 including VAT, accounts for £80 VAT as normal.
Practical points
- Keep records of every cashback payment and who received it
- Use credit notes for business-to-business rebates
- Check whether a payment is a discount or a fee for services
- Review promotions with your accountant before launch
Cashback on finance deals
Cashback paid by a finance company to encourage a customer to take out credit is usually outside the scope of VAT and does not reduce the dealer’s sale value.
Frequently asked questions
Do I pay VAT on cashback I receive as a consumer?
No.
Is a supermarket loyalty voucher a discount?
Usually, when redeemed it reduces the price paid.
What if a supplier pays me a marketing contribution?
It may be a taxable service you must invoice for.
Can I reduce VAT on an old sale?
Yes, if the price was later reduced, with evidence.
Related: VAT on credit notes and calculating VAT.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with VAT on discounts, cashback and rebates. See our VAT accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
