Returns and refunds: a complete guide to consumer laws

There are a range of laws and statutory rights concerning the return and refund of goods and services, and startups and small businesses need to be aware of these, and incorporate them into their sales process and business strategy.

Having a clear policy for the return and refund of applicable goods is vital. It provides customers with confidence that they can buy from your company, and be treated fairly if there is an issue with the product that requires it to be returned or refunded.

Below, we’ll explain the main laws underpinning returns and refund policies, the time windows in which a customer can request a refund, the rules when a consumer changes their mind about a purchase, what should happen if goods are faulty, how to treat returns and refunds for goods purchased in-store vs. online, and the new legislation planned regarding returns and refunds.

What are the main consumer laws underpinning returns and refunds policy?

When you sell something to a customer, you are making a contract with that customer. This means that both parties agree to specific terms and conditions that must be upheld, and you agree to meet a customer’s statutory rights.

The rules governing consumer rights for returns and refunds are covered by the Consumer Rights Act 2015, and supported by further laws underpinning different aspects of consumer law, including:

• Returns windows
• What happens when goods sold are not as described
• What happens when goods sold are faulty
• What happens when a consumer changes their mind about a purchase

The Consumer Rights Act 2015 was introduced to make these rights clearer and easier to understand, so consumers can buy and businesses can sell with confidence.

The Act builds on European Union (EU) consumer principles, which the UK was influential in setting when part of the EU. Following Brexit, the UK has retained consumer protections based on EU law.

What do SMEs need to consider regarding returns and refunds?

It’s important to understand that customers have legal rights when they buy goods or services. The main rules businesses must follow are:

• Consumers are entitled to a refund, repair or replacement if goods are faulty, whether purchased in-store or online. Retailers must also cover the cost of returns.
• When goods sold are not as described, the consumer has the right to a full refund or for the item to be repaired.
• Consumers do not have a legal right to return goods or get a refund if they have changed their mind after buying them from a shop.
• Consumers do have a legal right to change their mind after buying goods online, however.

Businesses are not legally obliged to have a refund and returns policy in place, but most do because this gives consumers confidence to buy from them. If you publish a returns or refunds policy, you must stick to it.

Most businesses will write a returns and refunds policy that’s based on enhancing goodwill. This means they will offer consumers a refund, exchange, or store credit note for most returns. If consumers change their mind about a purchase, most retailers will offer a refund or allow the goods to be returned and exchanged as they want to retain goodwill from customers. The exception is perishable goods such as food and underwear for health and safety reasons.

Startups need to adhere to the law, and create a policy that is legal and meets the needs of their business.

What are the legal time windows for returns?

If they’ve bought something online, by phone or mail order, customers have a 14-day grace period in which they can change their mind for any reason.

Alongside the 14-day cooling off period, consumers have the legal right to a refund if they return a faulty item within 30 days of receiving it, regardless of a business’s own returns policy.

If the consumer rejects the goods after 30 days, but still within six months of the purchase, they must give the retailer an opportunity to make a repair or offer a replacement. If that doesn’t rectify the issue, a consumer can request a refund.

After six months, the onus is on the consumer to prove the fault existed when the product was purchased.

What are the rules around ‘change of mind’ returns vs. returning faulty goods?

“Implementing distinct rules for instances where a customer changes their mind versus when a product is found to be defective is essential,” said Yiannis Zourmpanos, a consumer trends analyst, and senior contributor at online deals website Bountii.

If a consumer changes their mind about a purchase, they will usually contact the retailer to find out their options based on the retailer’s own policy. If they made the purchase in store, they are not legally entitled to a refund, and will be reliant on a retailer’s goodwill to offer a refund, exchange, or credit note. If the sale was made online, consumer law for online sellers dictates that a refund must be offered.

All goods, however purchased, can be returned or qualify for a refund if they are:

• Not of satisfactory quality
• Not as described online
• Not fit for purpose

Consumers don’t have the legal right to a return or refund if it’s been damaged by an accident, wear and tear or misuse. Sometimes retailer refund rules are less generous during sales, but at all times sellers must meet the statutory rules.

Read more: what is a payment reversal?

Returns with a receipt vs. with no receipt

It is generally easier for a consumer to get a refund or return if they have a receipt, but it’s not essential by law.

Most businesses have other options for when a customer does not have a receipt. Nowadays, with all records available online, it is quite easy to trace an initial purchase and find a record.

If a consumer changes their mind about a purchase, a business is not obligated to offer a refund with or without a receipt, but in practice many will offer an exchange or credit note.

If goods are faulty and the consumer does not have a receipt, they still have the right to a repair, refund, or exchange under the Consumer Rights Act. They only need to show proof of payment, which could be from a bank statement.

In store vs. online rules for returns and refunds

A consumer can return a non-faulty item purchased online legally, but there is no statutory right to do so for an item purchased in a shop.

The Consumer Contracts Regulations 2013 governs online returns and refunds. It requires traders to give consumers certain information regarding the goods and services they provide when selling online, over the phone, or by mail order.

It includes rules regarding the 14-day cooling off period that consumers have in which to change their mind if they have purchased something from a distance. When this period begins depends on whether the contract is for goods or services.

For goods purchased at a distance, the period starts from the date the consumer takes ownership of the goods. They can cancel at any time from when the order was placed, up to 14 days from the date the order arrived. For services purchased at a distance, the 14-day cooling off period starts the day after the consumer enters into the contract for the service.

There are exceptions to this rule, including for:

• Personalised items
• Perishable items such as flowers or food
• Digital goods like music downloads
• Sealed items that have been opened, for instance, computer games

In these cases, refunds and returns are usually not allowed, but individual companies will have their own guidelines.

Common problems for startups processing returns and refunds

The law is clear. You must offer a full refund if an item is faulty, not as described, or does not do what it’s supposed to. The tough part is the practical execution of this, because there can be a difference in perception of how you expect a product to work and how a customer does.

The key here for a business is to be reasonable and consider the long-term impact of your response. If there is a reasonable case, offering a refund or exchange helps keep the customer and avoids harming the business’s reputation.

“Stores can use order numbers or dates to check if the receipt is lost,” says Zourmpanos. “Being flexible helps build a good bond with buyers. With tricky cases like returns of worn items, missing tags, or open packages, stores need clear rules.”

If a customer knew the item was faulty when they bought it, or they tried to get the item repaired themselves, you do not have to offer them a full refund.

However, proving this can be difficult. If a customer initially accepts an item, but later says there is a fault, the business may have to repair or replace it.

Businesses can also be penalised for publishing notices in shops or on receipts that misleads consumers about their statutory rights – for instance, by saying the business does not accept returns or offer refunds.

Read more: the difference between chargebacks and refunds

What new legislation is planned?

The UK government began processing a new policy paper in December 2023. Entitled Enhancing consumer rights, it is not yet law, but is likely to move forward during the next parliament.

It aims to provide flexibility, so the law can adapt to protect consumers and respond to “a rapidly evolving online marketplace and changing consumer behaviours”. Startups need to consider how to integrate its conclusions into their returns and refunds policies.

Specifically, it is likely to introduce new measures to give consumers more control over their spending by:

• Dealing with unfair ‘subscription traps’
• Protecting those that pay into savings clubs
• Tackling emerging harms such as fake online reviews

Conclusion

As a business owner, you need to ensure you understand the laws regarding consumer rights regarding the returns and refunds of goods and services.

There are a range of rules governing when goods can be returned, if a refund or exchange is appropriate, the window for returns, what should happen when a product is faulty, and the different rules regarding in-store and online sales.

It is vital that a business communicates its policies clearly to customers so they have confidence in buying from the business.

In most instances, it’s best to work through any problems with a customer to try and ensure they become a repeat customer and to protect the business’s reputation.

Benjamin Salisbury - business journalist

Benjamin Salisbury is an experienced writer, editor and journalist who has worked for national newspapers, leading consumer websites like This Is Money and MoneySavingExpert.com, business analysts including Environment Analyst, AIM Group and written articles for professional bodies and financial companies. He covers news, personal finance, business, startups and property.