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You sell a gift card and book the money as revenue — but on the day you sell it, you haven't delivered anything yet. Some of that money is never claimed at all. That's called breakage, and it's the one line in your books almost no independent venue ever puts a number on.
To the buyer, a gift card is a present. To you, it's an interest-free loan: you get the cash today, and you deliver only when the recipient shows up — if they show up at all. That "if" is bigger than most owners think.
At a typical independent venue, somewhere between 10 and 15% of the value sold is never redeemed. That isn't a loss in the classic sense — nothing was stolen, nothing went wrong — but it is money that sits on your balance sheet, usually with nobody ever taking it back off.
On top of that comes a VAT question most restaurants answer wrong on instinct: is VAT due the moment you sell the card, or only when it's redeemed? The answer depends on your menu, not your gut feeling, and the EU directive that governs it has been in force since 2019.
This article walks through the five numbers that together decide how much of your gift card revenue is still sitting there, when you actually owe VAT on it, and why breakage is only half the story. At the bottom, you work it out for your own venue: what you sell in a year, how long you've run the programme, and what is genuinely still outstanding.
Why almost nobody knows this number
A supplier invoice reminds you it exists within thirty days. A gift card reminds you of nothing — it sits in a wallet, a drawer, or a text saying "we'll use it next time we're out", sometimes for years. There is no moment where a system flags that something is still outstanding, so it simply never reaches the agenda.
Bookkeeping habit makes it worse: most independent venues book gift card sales as revenue the moment the card is sold, full stop. That's technically wrong the instant you sell across more than one VAT rate (see the next number), and it also hides that part of that money never reaches a table, a plate or a glass.
Large chains DO track this: with thousands of cards a year and accounting systems that automatically deduct redemption from outstanding balance, they run at 2 to 4% breakage. An independent venue sells fewer cards, reminds guests less actively, and ends up at double or triple that share — not because the card is worth less, but because nobody is actively nudging it back to the till.
The ultimate guide Restaurant Finance: 6 Numbers That Decide Your Profit From food cost to cash flow: the six numbers that decide whether anything is left at the end of the year. Open the guideThe 5 numbers, and what each one costs or earns you
They build on each other: the first decides how much money is sitting there, the second decides when you owe VAT on it, and the last two show why that's no reason to stop selling gift cards.
1. 10 to 15% of your gift card revenue is never redeemed
Breakage is the share of sold value that is never claimed — not because anything went wrong, but because a gift card is simply easier to buy than to use. For an independent restaurant that share typically sits between 10 and 15%, against 2 to 4% at large chains with tight follow-up and reminder marketing.
The difference isn't the quality of your card, it's scale and follow-up: the smaller your portfolio of outstanding cards, the less statistical averaging happens, and the less marketing budget exists to nudge forgotten cards back into use.
So of the 100 cards you sell this year, roughly 12 never come back — not as a complaint, not as cash, just not at all. The rest is redeemed, but not all of it at the same pace, as the graphic below shows.
An illustrative picture built on the research above: most cards are redeemed quickly, a share only much later, and a fixed share never at all.
On €2,520 of annual gift card sales, 12% breakage means real money is structurally sitting on your books that never reaches a table.
2. 1 test decides when your VAT is actually due
Since the EU Voucher VAT Directive (2016/1065, in force since 1 January 2019), there are two kinds of gift card for VAT purposes: the Single-Purpose Voucher (SPV) and the Multi-Purpose Voucher (MPV). The distinction decides, literally, WHEN you have to remit VAT — and most restaurants have never actually run the test to see which one they sell.
The test itself is simple: at the moment of sale, do you already know both the place of supply and the exact VAT rate? A venue selling at a single rate can answer yes — that's an SPV, and VAT is due at sale. The moment your menu mixes rates — in most member states, reduced-rate food and standard-rate alcohol — you don't know that rate yet when the card changes hands. That makes it an MPV, and VAT is only due at redemption.
For most restaurants with a mixed menu, that makes the card an MPV by default, even though it feels backwards the instant the cash lands in the till today. Get it wrong and you either remit VAT on money that isn't a completed sale yet, or you under-remit when the card is finally redeemed against something taxed differently than you assumed. This is the general mechanism, not advice for your specific situation — confirm the application with your own accountant.
The Voucher VAT Directive's own test, in two steps.
Most restaurants with a mixed menu sell an MPV without realising it. This is the general mechanism from Directive 2016/1065 — not advice for your specific situation.
3. Redeemers spend more than the card is worth
Breakage sounds like bad news, and on its own it is, a little — but it isn't the whole story. Research into restaurant gift cards (Hospitality Technology, PYMNTS, and BHN/PaymentsJournal) shows that 61 to 75% of people who redeem a gift card spend MORE than its face value. For restaurant and fast-food cards specifically, that overspend averages somewhere between $19 and $108 depending on the study.
That changes the arithmetic. A €50 card that gets redeemed regularly brings in a €65 or €70 bill — the guest adds a dish, a bottle of wine, a dessert, because the money already feels "spent" psychologically. That extra revenue offsets a meaningful share of what breakage leaves unused.
Which is exactly why this article isn't an argument for dropping gift cards: a well-run programme nets more than breakage costs it. The point isn't "gift cards are a trap" — it's that you need to see both sides of the ledger, not just the side that lands in your till.
4. The legal minimum validity period varies sharply by EU country
How long a gift card must stay valid isn't set by one single European rule — it varies by member state, and the differences are substantial. Belgium typically requires a minimum validity of around 6 months; France's statutory minimum is 1 year.
Other countries apply different periods again, some based on general statute-of-limitations rules for claims rather than a dedicated gift card law. There is no single EU-wide minimum that applies identically everywhere.
This isn't legal advice for your market: confirm the rules that apply where you trade with your own accountant or lawyer before printing an expiry date on your card. Too short a validity period can be legally challenged; too long a one only lets the balance above keep growing.
5. 1 number you should be able to state: your outstanding balance
Of every number in this article, this is the only one you don't pull from research — you pull it from your own books: how much money is currently outstanding in sold, unredeemed gift cards? Most owners can't answer that question, and that's exactly the gap this article is built to close.
That balance isn't one abstract figure — it's two layers, both still "on the books" right now: this year's money that's simply still in transit toward redemption, plus every prior year's breakage that was never released to revenue, because almost no independent venue ever formally does that. That second layer quietly keeps growing, year after year, for as long as nobody addresses it.
At the bottom, you work it out for your own venue: enter what you sell a year, how long you've run the programme and what you estimate you lose to breakage, and the calculator shows you, in money, what's still outstanding — and what that means for the timing of your VAT.
Work it out for your own venue
Enter your own numbers: how much you sell in gift cards a year, how long you've run the programme, how much you estimate you lose to breakage, and how much guests typically overspend once they redeem. The fields start pre-filled with a realistic example — overwrite them with your own figures.
The calculator shows four things: what you expect to lose to breakage this year, what the average overspend earns you back, what is still outstanding on your books in total, and — if your menu mixes VAT rates — how much VAT that pushes from sale into a later period instead.
Breakage & VAT-timing calculator
Enter your own numbers and see, in money, what is still outstanding.
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This is a working model, not tax advice: confirm how it applies to your venue with your own accountant. Everything is calculated in your own browser; nothing is sent or stored.
Two things to keep in mind when you read the result. Breakage and the overspend uplift are two different amounts of money, and they're deliberately never netted against each other here: one is money that never comes back, the other is extra revenue that wouldn't exist without the card. Both count, separately.
The VAT balance only exists once your menu mixes rates (MPV). Sell at a single rate and your VAT was already due at the moment of sale — nothing has shifted, and the model shows exactly that.
What to do with this: this week, this month, this quarter
You don't need to rebuild your whole bookkeeping at once. This order works, because each step makes the next one measurable.
This week — ask the question you've never asked
- Work out whether your menu mixes one or several VAT rates — that decides whether you're selling an SPV or an MPV.
- Ask your accountant how gift card sales are currently booked: as revenue at sale, or as a prepayment?
- Count how many gift cards you sold in the last 12 months and how many of those were actually redeemed.
This month — measure instead of guessing
- Fill in the calculator above with your own numbers and save the result.
- Ask your accountant exactly what the legal minimum validity for gift cards is in your country.
- Put a recurring yearly slot in your calendar to recompute the outstanding balance — this number changes every year.
This quarter — put the policy in writing
- Agree with your accountant how and when breakage is formally released to revenue, instead of quietly piling up.
- Revisit your own card's validity period in light of what you found.
- Put the outstanding balance next to your cash flow — it's money that's yours on paper, but not freely spendable.
The money isn't lost, it's just still outstanding
Breakage isn't a reason to stop selling gift cards — it's a reason to know exactly what's sitting on your books. Most independent venues have sold them for years without ever working out that one number.
The good half of the story is at least as large as the awkward one: overspend at redemption often offsets a large share of what breakage leaves unused, and a gift card remains one of the cheapest ways to get a new guest through the door.
Do the same with the rest of your VAT and your bookkeeping — gift cards are only one place where the money in your restaurant isn't quite what it looks like. Want to design and print one properly once you know what you're printing? Use the free gift card designer.