Discounts and Bonuses: How to Reflect Them in Documentation
Entrepreneurs operating in the retail and service sectors use sales promotions from time to time to boost demand. These include promotional discounts, loyalty bonuses, and gift certificates.
In this article, we will look at how to issue fiscal receipts and calculate income, and wewill also address related aspects.
A discount is a temporary reduction in the price of goods. Under the law, discounts may be applied only for a limited period, with starting and ending dates specified. The discounted price must be lower than the price at which the goods were sold prior to the discount period.
A bonus, by contrast, is an additional benefit granted to a customer or an extra reduction in the price of goods that does not necessarily have a clearly defined time frame. Bonuses may be one-time or cumulative in nature. One-time bonuses are most often granted when goods are purchased for a certain amount or in a certain quantity. For example, when purchasing two items with a total value exceeding UAH 500, the third item may be provided “free of charge.”
Cumulative bonuses are always individual in nature. Recently, they have been typically provided through discount and/or bonus cards issued after the customer completes a registration form. Such cards are issued by the seller, who keeps identified records of the cards and the accumulated amounts.
How to Document Discounts
The decision to run a promotion must be documented. To avoid issues during inspections by regulatory authorities, the following documents should be in place:
- an order on a promotion;
- an approved cost estimate for the promotion;
- a promotion plan;
- a report on the results of the promotion.
The order should specify the purpose of the promotion, the period during which discounts are offered, the list of discounted goods, the conditions for granting discounts (which goods qualify, the amount of the discount, how bonuses can be redeemed for goods, etc.), as well as the methods used to inform customers about the promotion.
As bonus programs generally operate over a longer period, it is advisable to draft and approve an internal Regulation on the Use of Bonuses at a company. This regulation should outline the purpose of the bonus program, eligibility criteria, methods of participant registration, conditions for accruing and redeeming bonuses, the period during which bonuses remain valid, the procedure for bonus cancellation, adjustment of bonuses in the event of product returns, and similar matters.
It should also be taken into account that when bonuses are accrued, they are treated as contingent liabilities and may be recorded in an off-balance-sheet account (a rewards account) until actually used. Bonuses are written off when a customer redeems them. If bonuses are not used within the validity period of the bonus program, they are cancelled, provided this is stipulated in the Regulation on a bonus program.
Informing Customers
Customers must be informed about promotional campaigns and the opportunity to participate in the bonus program. For promotional discounts, information on the duration of the discount must be displayed in the sales area and/or shop windows, as required by the Law of Ukraine No. 1023-XII of 12.05.1991 On Consumer Rights Protection.
In addition, under paragraph 6 of Article 15 of the same Law, consumers must be provided with information on the price of goods that was in effect before a sale started or a discount was applied. Accordingly, price tags must show both the original price and the new discounted price.
As for the introduction of a bonus program, customers should be informed using an integrated approach: at customer checkout areas, through SMS or Viber campaigns, on website banners, via email, in social media (Instagram/Facebook posts), in a mobile application, etc. These measures are implemented as part of marketing communications under the requirements of the above-mentioned regulation.
Reflection in Fiscal Receipts
At present, almost all retail businesses, except for individual entrepreneurs subject to the single tax, are required to use cash registers or POS systems in settlements and to issue fiscal receipts to customers. Each register provides options for displaying discounts (which vary by model), and these must be used when generating receipts.
Please note that a discount may apply either to all goods or to individual items listed on a receipt. This must be clearly indicated, as any error will affect income calculation.
When reflecting payment for goods or part of their value using bonuses in a receipt issued using a cash register or a POS system, the following should be considered. One of the mandatory receipt details is the form of payment: “cash,” “electronic payment instrument,” “on credit,” “other,” along with the amount paid using such a form of payment. The first three options are not suitable for bonuses. Instead, the “other” option may be used, specifying “bonuses” and indicating the amount of bonuses redeemed.
The Public Information and Reference Resource of the tax authority (category 109.02) also provides clarifications on receipt issuance when payment is made with a gift certificate. In such cases, settlements are made for the full purchase amount and receipts are issued for that amount as well. The settlement must be exclusively cashless, and the type of payment must correspond to the actual method used for payment (e.g., “gift certificate,” “voucher”), with the relevant amount shown. If the total purchase amount exceeds the value of the certificate, the receipt should reflect multiple payment forms (“cash” and/or “cashless”), with the respective amounts. The same approach may also be applied when payment is made with bonuses.
Income Assessment
Income from the sale of goods at a discount is determined based on the actual selling price (reduced by the amount of the discount), excluding VAT. In accounting records, the discount amount is reflected in sub-account 704 “Deductions from Revenue,” reducing net sales revenue.
If the seller is a single tax payer, income must be determined in accordance with Article 292.1 of the Tax Code of Ukraine, which defines taxable income as funds received in cash or cashless form. Accordingly, when goods are sold at a discount, income consists of the amount actually received after applying the discount.
It should also be noted that if discounts are provided to all customers (public discounts), they are not included in the customer’s taxable income. However, if discounts are provided on an individual basis and enable customer identification, tax authorities may treat them as a “fringe benefit” subject to personal income tax at a rate of 18% (under subparagraph “e” of paragraph 164.2.17 of Article 164 of the Tax Code of Ukraine), using a gross-up coefficient under Article 164.5. At a tax rate of 18%, this coefficient equals 1.219512. In addition, military levy at a rate of 5% must be assessed and paid on the discount amount. Unlike personal income tax, no coefficients apply when calculating military levy on non-monetary income.
If a customer pays for goods using bonuses, such a transaction should be recorded as a sale at a discount. In this case, income is recognized only in the amount of funds actually received, not the full value of the goods.
How to Avoid Risks
Single tax payers – both individual entrepreneurs and legal entities – should be particularly cautious when offering bonuses or using gift certificates. They may grant customer benefits solely in the form of price discounts, thereby reducing their income by the discount amount. In this case, settlements will be monetary in nature.
Using bonuses as a substitute for money is not advisable, as such payments may be treated by the State Tax Service as non-monetary settlements (Individual Tax Ruling of 13.12.2024. No. 5699/ІПК/99-00-24-03-03). The use of non-monetary forms of settlement constitutes a violation of the requirements for applying the simplified taxation system and entails loss of single tax payer status from the first day of the month following the reporting period in which the violation occurred.
In such cases, the taxpayer must file an application with the tax authority at the primary place of registration to withdraw from the simplified taxation system no later than 10 calendar days before the start of the relevant period.
Natalia Shcherbak, Accounting and Tax Consultant