How to record VAT on Cash Back:
The cash back will be treated as other income for accounting purposes. However HMRC’s notice 700/7 explains that the VAT registered customers need to reduce their input tax if they are claiming a cash back provided by the manufacturer of the product. It is better to receive this cash back in your business bank if the purchased item is for the business use.
In this scenario the manufacturer of the product is giving you a credit not the bank or credit card company so the transaction will reduce the value of purchase. Hence it is better to consider this cash back as a refund against your initial purchase. Which will reduce the value of the purchase and will also reduce the input tax claimed on it.
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