Guidance on customer returns and refunds for small business

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UK consumers have significant rights when it comes to product returns, so you need to be aware of your legal duties and responsibilities as a small business. Consumers have rights when the goods they purchase are faulty or not as described by the seller. As a retailer, your customer returns policies can add to these statutory rights, but they may not take away from them.

The Consumer Rights Act 2015 came into force on 1st October 2015. Prior to this date, consumers were protected under the Sale of Goods Act 1979. The legal rights of consumers who purchased goods before the new Act came into effect are protected under provisions in the old Act.

Does my business have to accept returns?

Under the Consumer Rights Act 2015, your consumers may be entitled to a refund, replacement, repair and/or compensation if the goods they purchase from you are faulty, not as described, or don’t do what they are supposed to do. The same rules apply, whether the goods are purchased at full price, in a sale, or with a discount voucher. Furthermore, your customers are entitled to a full refund and/or compensation if you had no legal right to sell the goods. Detailed guidance is available here.

There are different rules for other situations. For goods bought in-store, there is usually no automatic right to return goods if the consumer purchased the wrong size of garment, or they simply changed their mind. However, there are exceptions for distance selling and off-premises sales, i.e. goods that are bought by mail order or online, and certain goods sold to a consumer whilst visiting them at their private residence.

Distance selling

Customers who buy goods online, by mail order or telephone, by text or fax, or through digital TV, have the right to cancel their order for a limited time for any reason, even if the item is not faulty. These types of sales categorised as ‘distance selling’ and the seller must adhere to the following rules:

  • A full refund must be offered to the customer if they inform you within 14 days of receiving an item that they want to cancel. The customer has a further 14 days to return the item after notifying you.
  • The customer must be refunded within 14 days of the returned goods being received by you. The customer is not required to provide a reason for the return.
  • You must provide information to the customer, before and after an order is placed, about their right to cancel within 14 days of placing the order.
  • You must tell the customer who is responsible for paying for returns. If you do not, you will you will be liable for the return costs.

Summary of Consumer Rights

The introduction of the Consumer Rights Act 2015 brings a number of changes that affect both businesses and consumers. A consumer rights summary has been produced to give a general overview of the key consumer rights. It focuses on the most common issues for goods bought in-store or at home (i.e. online, by phone, off-premises sales).

Goods bought in a shop:

Goods must be as described, fit for purpose and of satisfactory quality. During the expected lifespan of the item, the consumer is entitled to the following:

  • Up to 30 days – An immediate refund if the goods are faulty.
  • Up to 6 months – A full refund in most cases if they goods cannot be repaired or replaced.
  • Up to 6 years – Some money back if the goods do not last a reasonable length of time.

Customers who purchase goods in-store do not have a legal right to a refund or replacement just because they change their mind; but most businesses offer refunds in such circumstances.

Services paid for in a shop

  • Consumers can ask the seller to repeat or fix a service if it is not carried out with reasonable care and skill, or get some money back if it cannot be fixed.
  • If no price was agreed beforehand, the consumer must only be asked to pay what is reasonable
  • If no time was agreed beforehand, the service must be carried out within a reasonable time.

Goods ordered at home

The Consumer Rights Act 2015 says goods must be as described, fit for purpose and of satisfactory quality. During the expected lifespan of your product you’re entitled to the following:

  • Up to 30 days – If your goods are faulty, you can get a refund
  • Up to 6 months – If it can’t be repaired or replaced, then you’re entitled to a full refund in most cases.
  • Up to 6 years – If the goods do not last a reasonable length of time you may be entitled to some money back.

As per the Consumer Contracts Regulations 2013, a consumer who purchases goods online has up to 14 days after receiving their goods (in most cases) to change their mind and be offered a full refund.

Services ordered at home

  • Customers can ask the seller to replace or fix the service if it is not carried out with reasonable care and skill, or get some money back if it cannot be fixed.
  • If a price has not been agreed up front, the price the customer is asked to pay must be reasonable.
  • If a time has not been agreed up front, the service must be carried out within a reasonable time.

As per the Consumer Contracts Regulations 2013, the customer can cancel a service within 14 days. If they have agreed that the service will start within this timeframe, the customer can be charged for what they have used during that period.

Digital content ordered at home

Digital content must be as described, fit for purpose and of satisfactory quality.

  • If the digital content is faulty, the customer is entitled to a repair or a replacement.
  • If the fault cannot be repaired, or if it has not been fixed within a reasonable time and without significant inconvenience, the customer can get a full or partial refund.
  • If the customer can show that the fault has damaged the device and that the seller failed to use reasonable care and skill, they may be entitled to a repair or compensation.

As per the Consumer Contracts Regulations 2013, the customer has 14 days to change their mind and get a full refund on digital content. They do not have this right to cancel after a download has started if they have been told this and the have acknowledged it.

When you do not have to offer a refund

You do not have to offer refunds to customers in the following circumstances:

  • They were aware that an item was faulty when they bought it
  • The item was damaged whilst the consumer was attempting to carry out a repair. They may still have the right to a repair, replacement or partial refund.
  • They no longer want the item (e.g. wrong size, wrong colour, or they have simply changed their mind) unless they bought it without seeing it.

You have to offer a refund for certain items only if they are faulty, such as:

  • Personalised and custom-made items
  • Perishable goods like frozen food or flowers
  • Newspapers and magazines
  • Unwrapped CDs, DVDs and computer software

Repairing and replacing goods or services

If a customer discovers a fault with an item after they have ‘accepted’ it, the seller may still have to repair or replace the item. Goods are ‘accepted’ if the customer tells you they have accepted or altered the item. The customer is under no obligation to accept the goods after replacement or repair – the can still reject the item.

Sellers are legally required to repair or replace a product if the customer returns it within 6 months of purchase, unless the seller can prove that the item was not faulty when it was purchased. A seller has the right to ask the customer to prove that the goods were faulty at the time of purchase if a repair or replacement is requested after 6 months.

Refund and return statements you cannot make

You cannot remove or restrict consumers’ legal rights to return goods or services or refuse to provide a refund, replacement or repair that contravenes their statutory rights. It is also a criminal offence under the Consumer Protection from Unfair Trading Regulations 2008 to mislead consumers about their statutory rights. For example, you cannot state the following:

  • No refunds given
  • No refunds given except where goods are faulty
  • Goods can only be exchanged
  • Only credit notes will be given against faulty goods
  • Sold as seen

The above types of statements are prohibited even if also add a disclaimer such as ‘Your statutory rights remain unaffected’. This would be misleading so just don’t do it!

Creating a returns policy for your business

Sellers have no legal requirement to state or display information about their returns and refunds policy unless you provide the consumer with more than the law requires. If you do offer more than the legal entitlement, you can add your own conditions, such as:

  • The need to produce the original till receipt
  • The need to return the goods unused and in their original packaging
  • A deadline for returns
  • An offer to exchange or offer a credit note, but not to refund

Do remember that these conditions must not affect the consumer’s statutory rights to return goods. It is a good idea to add a statement like ‘This policy is offered in addition to your legal rights’ to avoid misleading the consumer.

About the author

James Howell

James Howell, Financial Controller of 1st Formations, is the driving force for the company’s financial department and is focussed on the success of the business. Throughout the growth of the business and harking back to his many years of previous experience in accountancy practice, dealing with all types of SMEs, he has developed a keen interest in all aspects of company formation and company secretarial work. In his spare time, James is a father to 2 young children but keeps up strong interests in both music and sport.

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By James Howell