What is a gift card?

A gift card is a prepaid card or code with a set value, which the recipient spends instead of cash. The buyer pays for the card, and the recipient chooses what they want and uses it at the till or at checkout. It lets you give someone money to spend on what they like, without it feeling like cash.

If you run a small shop, gift cards are also something you can sell, over the counter or online.

How do gift cards work?

The buyer picks an amount and pays for the card. The recipient gets it as a physical card or as a code, often by email. When they shop, they enter the code at checkout or hand over the card, and the amount comes off their total.

The card keeps track of what's left, so the recipient can spend the balance over several orders. They can also use the card for part of an order and pay the rest another way. If you're holding a card, the shop that issued it can tell you how much is left.

Which?, the UK consumer group, says you're unlikely to be able to swap a gift card for cash. It also says gift cards do expire, after a time that varies from card to card. It's worth checking the date on the card or in the email it came with.

Types of gift cards

Gift cards come as a physical card or a digital one. A physical gift card is a plastic or paper card, which the buyer can hand over in person. A digital gift card, also called an e-gift card, is bought online and arrives by email or text message with a code.

Gift cards also differ in where you can spend them. A card for one business is issued by the business itself and accepted only in its shops or on its website. It's known as a closed-loop card, and it's the kind a small business sells. A network card, or open-loop card, is issued on a card network such as Visa or Mastercard and works anywhere that accepts that network.

A network card gives the recipient more choice. If you know where someone likes to shop, a card for that business makes the more personal gift.

Is a gift card the same as a gift voucher?

Yes, in everyday use. In the UK, gift card, gift voucher and gift token are names for the same thing: a prepaid amount to spend with a business. Whichever name a shop uses, check the terms that come with it. They tell you when the card expires, where you can spend it and whether any fees apply.

What are gift cards used for?

As a present, a gift card works well when you know someone likes a shop or restaurant, but you don't know what they'd choose there. Pick a card for a place they love, such as a friend's favourite restaurant, and it still feels personal.

Companies also buy gift cards as corporate gifts. A shop can refund a return to a gift card too, which the customer then spends there next time.

Why offer gift cards in your online shop?

Gift cards let your customers bring you new ones. When someone buys a card on your e-commerce website, the person who receives it may not be one of your customers yet. Now they have a reason to visit, and if they like what they find, they may come back without a card next time.

When people spend a gift card, they can end up spending more than its value and pay the difference themselves.

Gift cards also suit businesses that sell services or experiences. A spa, for example, can sell a gift card for a treatment and offer branded extras with it, such as bathrobes or slippers with its logo.

What to decide before you offer gift cards

We recommend settling these points before you sell your first card.

• Set the amounts. Offer a few fixed amounts.
• Show the expiry and terms. According to Which?, expiry dates are allowed as long as the buyer is told about them when they buy. Show the expiry date and the main terms on the product page and on the card itself.
• Brand the card. Place your logo where people see it straight away.
• Keep track of every card. Note each card you sell with its code and the balance left, in a spreadsheet if you only sell a few. Once a card's balance runs out, mark it as used.
• Follow the email rules. If you'd like to send gift card buyers marketing emails later, PECR, the UK's rules on email marketing, lets you email your customers about products similar to what they bought from you. You must have given them a simple way to opt out when you collected their email address and in every email after it.
• Check when VAT is due. HMRC's VAT rules for gift cards turn on what each card can buy.

HMRC treats a card as a single-purpose voucher if you know what it buys, its VAT rate and that it will be spent in the UK when you sell it. VAT is then due at the sale. A card for anything in your shop counts too, as long as everything you sell has the same VAT rate. If it can buy things with different VAT rates, it's a multi-purpose voucher, with VAT due when the card is spent.

The busiest times for gift cards

For your shop, Christmas is the big one. Many people are short of time and ideas in December, and your gift card solves both. A digital card suits these buyers best, since it arrives by email and you have nothing to post.

Gifting days such as Valentine's Day and Mother's Day, and sales periods such as Black Friday and Cyber Monday, are other moments to plan for. It's worth promoting your gift cards ahead of each one, and again when it's too late to post a present.

Selling gift cards with our Online Shop

With our online shop, you can sell gift cards alongside physical products, digital downloads and services. It's part of our Commerce plan, for small businesses ready to sell products.

Once your shop is live, you add a gift card as a product. You give it a name, a description, an image, its amount and how long it's valid, and you can offer several gift cards with different amounts. Our help centre shows how to sell gift cards in your online shop.

Set up your shop, add your gift cards and take card payments. We don't take a commission on your sales. Besides your Commerce plan, the only cost on your sales is the payment provider's standard fees.