Customer reward

[AndyHa]

Hello

I have a query which I’m hoping someone can answer. We’re thinking of rewarding our customers by paying them a small commission if they recommend our product to others which results in a sale. Say they recommended our product to their friend, and that friend purchased the product for £100. We would then want to reward the customer who recommended our product with a £10 commission payment. Can we just write a cheque and send that to them or are their tax implications here?

Thanks...Andy

[yorkshirejames]

I would advise against writing them a cheque - to be proper, they would have to issue you with an invoice, and thats before both of you pay the bank charges to cash a cheque. To do it this way, they would need to register this as a sale, and you as a purchase, and it would be standard rated for VAT I think.

You could do some form of credit note, but personally my favoured suggestion is just to offer this customer a discount from their next order.

This has the double advantage of ensuring that they make a follow-on purchase from you (in order to claim their discount). As an alternative you could offer free delivery/a free item/etc.