diff --git a/backend/handlers/payments/loyalty.go b/backend/handlers/payments/loyalty.go
new file mode 100644
index 0000000..97a6083
--- /dev/null
+++ b/backend/handlers/payments/loyalty.go
@@ -0,0 +1,181 @@
+package payments
+
+import (
+	"crussell/db"
+	"crussell/internal/validators"
+	"crussell/mw"
+	"encoding/json"
+	"errors"
+	"log"
+	"math"
+	"net/http"
+
+	"github.com/go-chi/chi/v5"
+	"github.com/jackc/pgx/v5"
+)
+
+func roundTo2(f float64) float64 {
+	return math.Round(f*100) / 100
+}
+
+// ApplyLoyaltyRedemption handles POST /api/bookings/{id}/apply-redemption.
+// It applies a 10% loyalty discount to the booking using a pending redemption.
+func ApplyLoyaltyRedemption(w http.ResponseWriter, r *http.Request) {
+	bookingID := chi.URLParam(r, "id")
+	if bookingID == "" || !validators.IsValidID(bookingID) {
+		http.Error(w, "Booking not found", http.StatusNotFound)
+		return
+	}
+
+	userID, ok := r.Context().Value(mw.UserIDKey).(string)
+	if !ok || userID == "" {
+		http.Error(w, "Authentication required", http.StatusUnauthorized)
+		return
+	}
+
+	var bookingUserID string
+	if err := db.DB.QueryRow(r.Context(), `SELECT user_id FROM bookings WHERE id = $1`, bookingID).Scan(&bookingUserID); err != nil {
+		if errors.Is(err, pgx.ErrNoRows) {
+			http.Error(w, "Booking not found", http.StatusNotFound)
+			return
+		}
+		log.Printf("Failed to verify booking ownership: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+	if bookingUserID != userID {
+		http.Error(w, "Unauthorized", http.StatusForbidden)
+		return
+	}
+
+	var bookingStatus string
+	if err := db.DB.QueryRow(r.Context(), `SELECT status FROM bookings WHERE id = $1`, bookingID).Scan(&bookingStatus); err != nil {
+		log.Printf("Failed to get booking status: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+	switch bookingStatus {
+	case "completed", "cancelled", "no_show", "deposit_lapsed":
+		http.Error(w, "Booking is in a terminal state and cannot accept redemptions", http.StatusBadRequest)
+		return
+	}
+
+	var loyaltyStamps int
+	if err := db.DB.QueryRow(r.Context(), `SELECT loyalty_stamps FROM users WHERE id = $1`, userID).Scan(&loyaltyStamps); err != nil {
+		if errors.Is(err, pgx.ErrNoRows) {
+			http.Error(w, "User not found", http.StatusNotFound)
+			return
+		}
+		log.Printf("Failed to get loyalty stamps: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+	if loyaltyStamps < 10 {
+		http.Error(w, "Insufficient loyalty stamps", http.StatusBadRequest)
+		return
+	}
+
+	var redemptionID string
+	if err := db.DB.QueryRow(r.Context(), `
+		SELECT id FROM loyalty_redemptions
+		WHERE user_id = $1 AND status = 'pending' AND expires_at > NOW()
+		ORDER BY redeemed_at ASC LIMIT 1
+	`, userID).Scan(&redemptionID); err != nil {
+		if errors.Is(err, pgx.ErrNoRows) {
+			http.Error(w, "No pending loyalty redemption found", http.StatusBadRequest)
+			return
+		}
+		log.Printf("Failed to check loyalty redemption: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+
+	var existingDiscount int
+	if err := db.DB.QueryRow(r.Context(), `
+		SELECT 1 FROM booking_discounts WHERE booking_id = $1 AND discount_source = 'loyalty'
+	`, bookingID).Scan(&existingDiscount); err == nil {
+		http.Error(w, "A loyalty discount has already been applied to this booking", http.StatusBadRequest)
+		return
+	}
+
+	tx, err := db.DB.Begin(r.Context())
+	if err != nil {
+		log.Printf("Failed to begin transaction: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+	defer tx.Rollback(r.Context())
+
+	var bookingTotal float64
+	if err := tx.QueryRow(r.Context(), `
+		SELECT COALESCE(SUM(price_val), 0) FROM (
+			SELECT COALESCE(bs.override_price, s.price) AS price_val
+			FROM booking_services bs
+			JOIN services s ON bs.service_id = s.id
+			WHERE bs.booking_id = $1
+			UNION ALL
+			SELECT COALESCE(bcs.override_price, cs.price)
+			FROM booking_custom_services bcs
+			JOIN custom_services cs ON bcs.custom_service_id = cs.id
+			WHERE bcs.booking_id = $1
+		) sub
+	`, bookingID).Scan(&bookingTotal); err != nil {
+		log.Printf("Failed to calculate booking total: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+
+	discountAmount := roundTo2(bookingTotal * 0.10)
+
+	if discountAmount <= 0 {
+		http.Error(w, "Booking total is zero, no discount applicable", http.StatusBadRequest)
+		return
+	}
+
+	if _, err := tx.Exec(r.Context(), `
+		INSERT INTO booking_discounts (booking_id, user_id, discount_source, source_id, campaign_type, milestone_type, discount_percent, original_total, discount_amount)
+		VALUES ($1, $2, 'loyalty', $3, NULL, NULL, 10.00, $4, $5)
+	`, bookingID, userID, redemptionID, bookingTotal, discountAmount); err != nil {
+		log.Printf("Failed to insert booking discount: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+
+	if _, err := tx.Exec(r.Context(), `
+		INSERT INTO payments (booking_id, payment_type, payment_method, amount, status, created_by)
+		VALUES ($1, 'partial', 'discount', $2, 'completed', $3)
+	`, bookingID, discountAmount, userID); err != nil {
+		log.Printf("Failed to insert payment record: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+
+	if _, err := tx.Exec(r.Context(), `
+		UPDATE loyalty_redemptions SET status = 'applied', applied_to_booking_id = $1, applied_at = NOW()
+		WHERE id = $2
+	`, bookingID, redemptionID); err != nil {
+		log.Printf("Failed to update loyalty redemption: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+
+	if _, err := tx.Exec(r.Context(), `
+		UPDATE users SET loyalty_stamps = GREATEST(0, loyalty_stamps - $1) WHERE id = $2
+	`, LoyaltyStampCost, userID); err != nil {
+		log.Printf("Failed to update loyalty stamps: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+
+	if err := tx.Commit(r.Context()); err != nil {
+		log.Printf("Failed to commit transaction: %v", err)
+		http.Error(w, "internal server error", http.StatusInternalServerError)
+		return
+	}
+
+	w.Header().Set("Content-Type", "application/json")
+	json.NewEncoder(w).Encode(map[string]interface{}{
+		"success":         true,
+		"discount_amount": discountAmount,
+	})
+}
diff --git a/backend/handlers/payments/loyalty_test.go b/backend/handlers/payments/loyalty_test.go
new file mode 100644
index 0000000..8fef26a
--- /dev/null
+++ b/backend/handlers/payments/loyalty_test.go
@@ -0,0 +1,446 @@
+//go:build test && dev
+// +build test,dev
+
+package payments
+
+import (
+	"context"
+	"encoding/json"
+	"net/http"
+	"net/http/httptest"
+	"testing"
+	"time"
+
+	"crussell/db"
+	"crussell/mw"
+	"crussell/testutils/fixtures"
+	"crussell/testutils/jwt"
+
+	"github.com/go-chi/chi/v5"
+)
+
+// =============================================================================
+// ApplyLoyaltyRedemption — POST /api/bookings/{id}/apply-redemption
+// =============================================================================
+
+func setupLoyaltyUser(t *testing.T, stamps int) (string, string, string) {
+	t.Helper()
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+
+	_, err = db.DB.Exec(context.Background(),
+		"UPDATE users SET loyalty_stamps = $1 WHERE id = $2", stamps, userID)
+	if err != nil {
+		t.Fatalf("failed to set loyalty_stamps: %v", err)
+	}
+
+	// Create a pending loyalty_redemption if stamps >= 10
+	if stamps >= 10 {
+		_, err = db.DB.Exec(context.Background(), `
+			INSERT INTO loyalty_redemptions (user_id, status, redeemed_at, expires_at)
+			VALUES ($1, 'pending', NOW(), NOW() + INTERVAL '6 months')
+		`, userID)
+		if err != nil {
+			t.Fatalf("failed to create loyalty redemption: %v", err)
+		}
+	}
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID, time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+
+	_, err = db.DB.Exec(context.Background(),
+		"UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to set booking status: %v", err)
+	}
+
+	userToken := jwt.GenerateUserToken(userID)
+	return userID, bookingID, userToken
+}
+
+func makeApplyRedemptionRequest(bookingID, token string) *httptest.ResponseRecorder {
+	handler := http.HandlerFunc(ApplyLoyaltyRedemption)
+
+	req := httptest.NewRequest("POST", "/api/bookings/"+bookingID+"/apply-redemption", nil)
+	req.Header.Set("Authorization", "Bearer "+token)
+
+	rctx := chi.NewRouteContext()
+	rctx.URLParams.Add("id", bookingID)
+	ctx := context.WithValue(req.Context(), chi.RouteCtxKey, rctx)
+
+	userID := extractUserFromTestJWT(token)
+	if userID != nil {
+		ctx = context.WithValue(ctx, mw.UserIDKey, userID.userID)
+		ctx = context.WithValue(ctx, mw.UserRoleKey, userID.role)
+	}
+
+	req = req.WithContext(ctx)
+	w := httptest.NewRecorder()
+	handler.ServeHTTP(w, req)
+	return w
+}
+
+func TestApplyLoyaltyRedemption_Success(t *testing.T) {
+	resetTestData(t)
+	_, bookingID, userToken := setupLoyaltyUser(t, 10)
+
+	w := makeApplyRedemptionRequest(bookingID, userToken)
+	if w.Code != http.StatusOK {
+		t.Fatalf("expected 200, got %d: %s", w.Code, w.Body.String())
+	}
+
+	var resp map[string]interface{}
+	if err := json.Unmarshal(w.Body.Bytes(), &resp); err != nil {
+		t.Fatalf("failed to parse response: %v", err)
+	}
+
+	if resp["success"] != true {
+		t.Error("expected success=true")
+	}
+	discountAmount, ok := resp["discount_amount"].(float64)
+	if !ok || discountAmount <= 0 {
+		t.Errorf("expected positive discount_amount, got %v", resp["discount_amount"])
+	}
+
+	// Verify booking_discounts was created
+	var discountCount int
+	err := db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM booking_discounts WHERE booking_id = $1 AND discount_source = 'loyalty'", bookingID).Scan(&discountCount)
+	if err != nil {
+		t.Fatalf("failed to query booking_discounts: %v", err)
+	}
+	if discountCount != 1 {
+		t.Errorf("expected 1 loyalty discount record, got %d", discountCount)
+	}
+
+	// Verify stamps were deducted (10 - 10 = 0)
+	var stamps int
+	err = db.DB.QueryRow(context.Background(), "SELECT loyalty_stamps FROM users WHERE id = (SELECT user_id FROM bookings WHERE id = $1)", bookingID).Scan(&stamps)
+	if err != nil {
+		t.Fatalf("failed to query stamps: %v", err)
+	}
+	if stamps != 0 {
+		t.Errorf("expected 0 stamps after redemption, got %d", stamps)
+	}
+
+	// Verify a discount payment record was created
+	var paymentCount int
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM payments WHERE booking_id = $1 AND payment_method = 'discount'", bookingID).Scan(&paymentCount)
+	if err != nil {
+		t.Fatalf("failed to query payments: %v", err)
+	}
+	if paymentCount != 1 {
+		t.Errorf("expected 1 discount payment record, got %d", paymentCount)
+	}
+}
+
+func TestApplyLoyaltyRedemption_InsufficientStamps(t *testing.T) {
+	resetTestData(t)
+	_, bookingID, userToken := setupLoyaltyUser(t, 5)
+
+	w := makeApplyRedemptionRequest(bookingID, userToken)
+	if w.Code != http.StatusBadRequest && w.Code != http.StatusConflict {
+		t.Fatalf("expected 4xx for insufficient stamps, got %d: %s", w.Code, w.Body.String())
+	}
+}
+
+func TestApplyLoyaltyRedemption_AlreadyApplied(t *testing.T) {
+	resetTestData(t)
+	_, bookingID, userToken := setupLoyaltyUser(t, 10)
+
+	// First call should succeed
+	w := makeApplyRedemptionRequest(bookingID, userToken)
+	if w.Code != http.StatusOK {
+		t.Fatalf("first call expected 200, got %d: %s", w.Code, w.Body.String())
+	}
+
+	// Second call should be rejected
+	w = makeApplyRedemptionRequest(bookingID, userToken)
+	if w.Code != http.StatusConflict && w.Code != http.StatusBadRequest {
+		t.Fatalf("second call expected 4xx, got %d: %s", w.Code, w.Body.String())
+	}
+
+	// Verify still only 1 discount record
+	var discountCount int
+	db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM booking_discounts WHERE booking_id = $1 AND discount_source = 'loyalty'", bookingID).Scan(&discountCount)
+	if discountCount != 1 {
+		t.Errorf("expected 1 loyalty discount record, got %d", discountCount)
+	}
+}
+
+func TestApplyLoyaltyRedemption_TerminalBooking(t *testing.T) {
+	resetTestData(t)
+	_, bookingID, userToken := setupLoyaltyUser(t, 10)
+
+	// Set booking to a terminal status
+	_, err := db.DB.Exec(context.Background(),
+		"UPDATE bookings SET status = 'completed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to set booking status: %v", err)
+	}
+
+	w := makeApplyRedemptionRequest(bookingID, userToken)
+	if w.Code != http.StatusBadRequest {
+		t.Fatalf("expected 400 for terminal booking, got %d: %s", w.Code, w.Body.String())
+	}
+}
+
+// =============================================================================
+// applyEligibleCampaignsAtPayment — campaign auto-apply at payment time
+// =============================================================================
+
+func setupCampaignTest(t *testing.T) (string, string, string) {
+	t.Helper()
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID, time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+
+	_, err = db.DB.Exec(context.Background(),
+		"UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to set booking status: %v", err)
+	}
+
+	userToken := jwt.GenerateUserToken(userID)
+	return userID, bookingID, userToken
+}
+
+func TestCampaignAutoApply_TimeBased(t *testing.T) {
+	resetTestData(t)
+	userID, bookingID, _ := setupCampaignTest(t)
+
+	// Create an active time-based campaign
+	now := time.Now()
+	var campaignID string
+	err := db.DB.QueryRow(context.Background(), `
+		INSERT INTO discount_campaigns (name, campaign_type, discount_percent, status, start_date, end_date, times_redeemed)
+		VALUES ($1, 'time_based', 10, 'active', $2, $3, 0)
+		RETURNING id
+	`, "Early Payment Sale", now.Add(-24*time.Hour), now.Add(24*time.Hour)).Scan(&campaignID)
+	if err != nil {
+		t.Fatalf("failed to create campaign: %v", err)
+	}
+
+	// Insert a deposit payment to trigger campaign auto-apply
+	_, err = db.DB.Exec(context.Background(), `
+		INSERT INTO payments (booking_id, payment_type, payment_method, amount, status, created_at, updated_at)
+		VALUES ($1, 'deposit', 'online_square', 2500, 'completed', NOW(), NOW())
+	`, bookingID)
+	if err != nil {
+		t.Fatalf("failed to create payment: %v", err)
+	}
+
+	// Call applyEligibleCampaignsAtPayment
+	applyEligibleCampaignsAtPayment(context.Background(), bookingID, userID)
+
+	// Verify booking_discounts was created
+	var discountCount int
+	db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM booking_discounts WHERE booking_id = $1 AND discount_source = 'campaign'", bookingID).Scan(&discountCount)
+	if discountCount != 1 {
+		t.Errorf("expected 1 campaign discount, got %d", discountCount)
+	}
+
+	// Verify times_redeemed was incremented
+	var timesRedeemed int
+	db.DB.QueryRow(context.Background(),
+		"SELECT times_redeemed FROM discount_campaigns WHERE id = $1", campaignID).Scan(&timesRedeemed)
+	if timesRedeemed != 1 {
+		t.Errorf("expected 1 redemption, got %d", timesRedeemed)
+	}
+}
+
+func TestCampaignAutoApply_UserMilestone(t *testing.T) {
+	resetTestData(t)
+	userID, bookingID, _ := setupCampaignTest(t)
+
+	// Give user 5 completed bookings to match milestone_value=5
+	for i := 0; i < 5; i++ {
+		var bid string
+		db.DB.QueryRow(context.Background(), `
+			INSERT INTO bookings (user_id, start_time, status) VALUES ($1, $2, 'completed') RETURNING id
+		`, userID, time.Date(2024, time.Month(i+1), 15, 10, 0, 0, 0, time.UTC)).Scan(&bid)
+	}
+
+	// Create user milestone campaign for 5th booking
+	var campaignID string
+	err := db.DB.QueryRow(context.Background(), `
+		INSERT INTO discount_campaigns (name, campaign_type, discount_percent, status, start_date, end_date, milestone_type, milestone_value, max_redemptions, times_redeemed)
+		VALUES ($1, 'milestone', 15, 'active', NOW(), NOW() + INTERVAL '1 year', 'per_user_booking_count', 5, 1, 0)
+		RETURNING id
+	`, "5th Booking Bonus").Scan(&campaignID)
+	if err != nil {
+		t.Fatalf("failed to create campaign: %v", err)
+	}
+
+	// Insert a payment
+	_, err = db.DB.Exec(context.Background(), `
+		INSERT INTO payments (booking_id, payment_type, payment_method, amount, status, created_at, updated_at)
+		VALUES ($1, 'deposit', 'online_square', 2500, 'completed', NOW(), NOW())
+	`, bookingID)
+	if err != nil {
+		t.Fatalf("failed to create payment: %v", err)
+	}
+
+	applyEligibleCampaignsAtPayment(context.Background(), bookingID, userID)
+
+	var discountCount int
+	db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM booking_discounts WHERE booking_id = $1 AND discount_source = 'campaign'", bookingID).Scan(&discountCount)
+	if discountCount != 1 {
+		t.Errorf("expected 1 campaign discount, got %d", discountCount)
+	}
+}
+
+func TestCampaignAutoApply_GlobalMilestoneSkippedOnline(t *testing.T) {
+	resetTestData(t)
+	userID, bookingID, _ := setupCampaignTest(t)
+
+	// Set global completed count high enough
+	now := time.Now()
+	for i := 0; i < 100; i++ {
+		db.DB.QueryRow(context.Background(), `
+			INSERT INTO bookings (user_id, start_time, status) VALUES ($1, $2, 'completed') RETURNING id
+		`, userID, now.Add(-time.Duration(i)*24*time.Hour)).Scan(new(string))
+	}
+
+	// Create global milestone campaign at milestone_value=100
+	var campaignID string
+	err := db.DB.QueryRow(context.Background(), `
+		INSERT INTO discount_campaigns (name, campaign_type, discount_percent, status, start_date, end_date, milestone_type, milestone_value, max_redemptions, times_redeemed)
+		VALUES ($1, 'milestone', 20, 'active', NOW(), NOW() + INTERVAL '1 year', 'global_booking_count', 100, 5, 0)
+		RETURNING id
+	`, "100th Booking Celebration").Scan(&campaignID)
+	if err != nil {
+		t.Fatalf("failed to create campaign: %v", err)
+	}
+
+	// Insert an ONLINE payment first (not in_person_card)
+	_, err = db.DB.Exec(context.Background(), `
+		INSERT INTO payments (booking_id, payment_type, payment_method, amount, status, created_at, updated_at)
+		VALUES ($1, 'deposit', 'online_square', 2500, 'completed', NOW(), NOW())
+	`, bookingID)
+	if err != nil {
+		t.Fatalf("failed to create payment: %v", err)
+	}
+
+	applyEligibleCampaignsAtPayment(context.Background(), bookingID, userID)
+
+	// Verify NO discount was applied (global milestone skipped for online payment)
+	var discountCount int
+	db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM booking_discounts WHERE booking_id = $1 AND discount_source = 'campaign'", bookingID).Scan(&discountCount)
+	if discountCount != 0 {
+		t.Errorf("expected 0 campaign discounts (global milestone skipped for online), got %d", discountCount)
+	}
+}
+
+func TestCampaignAutoApply_GlobalMilestoneAppliedInPerson(t *testing.T) {
+	resetTestData(t)
+	userID, bookingID, _ := setupCampaignTest(t)
+
+	for i := 0; i < 100; i++ {
+		db.DB.QueryRow(context.Background(), `
+			INSERT INTO bookings (user_id, start_time, status) VALUES ($1, $2, 'completed') RETURNING id
+		`, userID, time.Date(2024, time.Month(i%12+1), 15, 10, 0, 0, 0, time.UTC)).Scan(new(string))
+	}
+
+	var campaignID string
+	err := db.DB.QueryRow(context.Background(), `
+		INSERT INTO discount_campaigns (name, campaign_type, discount_percent, status, start_date, end_date, milestone_type, milestone_value, max_redemptions, times_redeemed)
+		VALUES ($1, 'milestone', 20, 'active', NOW(), NOW() + INTERVAL '1 year', 'global_booking_count', 100, 5, 0)
+		RETURNING id
+	`, "100th Booking Celebration").Scan(&campaignID)
+	if err != nil {
+		t.Fatalf("failed to create campaign: %v", err)
+	}
+
+	// Insert an IN-PERSON payment
+	_, err = db.DB.Exec(context.Background(), `
+		INSERT INTO payments (booking_id, payment_type, payment_method, amount, status, created_at, updated_at)
+		VALUES ($1, 'full', 'in_person_card', 5000, 'completed', NOW(), NOW())
+	`, bookingID)
+	if err != nil {
+		t.Fatalf("failed to create payment: %v", err)
+	}
+
+	// Simulate what CreateBookingPayment does: set status to confirmed after payment
+	db.DB.Exec(context.Background(),
+		"UPDATE bookings SET status = 'confirmed', updated_at = NOW() WHERE id = $1", bookingID)
+
+	applyEligibleCampaignsAtPayment(context.Background(), bookingID, userID)
+
+	var discountCount int
+	db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM booking_discounts WHERE booking_id = $1 AND discount_source = 'campaign'", bookingID).Scan(&discountCount)
+	if discountCount != 1 {
+		t.Errorf("expected 1 campaign discount (in-person global milestone), got %d", discountCount)
+	}
+}
+
+func TestCampaignAutoApply_DoubleApplyGuard(t *testing.T) {
+	resetTestData(t)
+	userID, bookingID, _ := setupCampaignTest(t)
+
+	now := time.Now()
+	var campaignID string
+	err := db.DB.QueryRow(context.Background(), `
+		INSERT INTO discount_campaigns (name, campaign_type, discount_percent, status, start_date, end_date, times_redeemed)
+		VALUES ($1, 'time_based', 10, 'active', $2, $3, 0)
+		RETURNING id
+	`, "Test Sale", now.Add(-24*time.Hour), now.Add(24*time.Hour)).Scan(&campaignID)
+	if err != nil {
+		t.Fatalf("failed to create campaign: %v", err)
+	}
+
+	// Manually insert a booking_discount to simulate it was already applied at payment time
+	_, err = db.DB.Exec(context.Background(), `
+		INSERT INTO booking_discounts (booking_id, user_id, discount_source, source_id, campaign_type, discount_percent, original_total, discount_amount)
+		VALUES ($1, $2, 'campaign', $3, 'time_based', 10, 5000, 500)
+	`, bookingID, userID, campaignID)
+	if err != nil {
+		t.Fatalf("failed to insert existing discount: %v", err)
+	}
+
+	// Pretend campaign was already redeemed
+	db.DB.Exec(context.Background(),
+		"UPDATE discount_campaigns SET times_redeemed = 1 WHERE id = $1", campaignID)
+
+	// Insert payment to trigger applyEligibleCampaignsAtPayment
+	db.DB.Exec(context.Background(), `
+		INSERT INTO payments (booking_id, payment_type, payment_method, amount, status, created_at, updated_at)
+		VALUES ($1, 'deposit', 'online_square', 2500, 'completed', NOW(), NOW())
+	`, bookingID)
+
+	applyEligibleCampaignsAtPayment(context.Background(), bookingID, userID)
+
+	// Verify still only 1 discount
+	var discountCount int
+	db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM booking_discounts WHERE booking_id = $1 AND discount_source = 'campaign'", bookingID).Scan(&discountCount)
+	if discountCount != 1 {
+		t.Errorf("expected 1 campaign discount (no double-apply), got %d", discountCount)
+	}
+}
diff --git a/backend/handlers/payments/refund_policy.go b/backend/handlers/payments/refund_policy.go
new file mode 100644
index 0000000..0736247
--- /dev/null
+++ b/backend/handlers/payments/refund_policy.go
@@ -0,0 +1,20 @@
+package payments
+
+import "time"
+
+const (
+	FullRefundThreshold    = 72 * time.Hour
+	PartialRefundThreshold = 24 * time.Hour
+	NoShowThreshold        = 24 * time.Hour
+	DepositDeadlineWindow  = 24 * time.Hour
+	DepositAdvanceWindow   = 36 * time.Hour
+
+	FullRefundTier    = "full_refund_72h"
+	PartialRefundTier = "partial_refund_24h_72h"
+	NoRefundTier      = "no_refund_under_24h"
+
+	ProtectedDepositMaxPct = 0.50
+	RequiredDepositPct     = 0.20
+
+	LoyaltyStampCost = 10
+)
diff --git a/backend/handlers/payments/refunds.go b/backend/handlers/payments/refunds.go
new file mode 100644
index 0000000..12eee00
--- /dev/null
+++ b/backend/handlers/payments/refunds.go
@@ -0,0 +1,280 @@
+package payments
+
+import (
+	"context"
+	"log"
+	"math"
+	"time"
+
+	"crussell/db"
+	"crussell/internal/square"
+)
+
+type RefundCalculationResult struct {
+	TotalPrePaid          float64 `json:"total_pre_paid"`
+	ProtectedDeposit      float64 `json:"protected_deposit"`
+	RefundableAmount      float64 `json:"refundable_amount"`
+	KeptAmount            float64 `json:"kept_amount"`
+	HoursUntilAppointment float64 `json:"hours_until_appointment"`
+	Tier                  string  `json:"tier"`
+}
+
+// CalculateRefundForCancellation computes the refund amounts for a cancelled booking.
+//
+// Track A (universal — same rules for all bookings):
+//   - >72 hours notice:        Full refund of all pre-payments
+//   - 24-72 hours notice:      Keep protected deposit (up to 50%), refund the rest
+//   - <24 hours or no-show:    Keep all pre-payments
+//
+// The "protected deposit" is defined as min(totalPrePaid, subtotal * 0.50).
+// This means up to 50% of the subtotal is always treated as a deposit for
+// refund purposes, regardless of whether deposit_required was set on the booking.
+func CalculateRefundForCancellation(
+	subtotal float64,
+	totalPrePaid float64,
+	cancellationTime time.Time,
+	startTime time.Time,
+) RefundCalculationResult {
+	hoursUntilAppointment := startTime.Sub(cancellationTime).Hours()
+
+	protectedDeposit := math.Min(totalPrePaid, subtotal*ProtectedDepositMaxPct)
+
+	// Round to 2 decimal places
+	protectedDeposit = math.Round(protectedDeposit*100) / 100
+	totalPrePaidRounded := math.Round(totalPrePaid*100) / 100
+
+	var refundableAmount, keptAmount float64
+	var tier string
+
+	fullHrs := FullRefundThreshold.Hours()
+	partHrs := PartialRefundThreshold.Hours()
+
+	switch {
+	case hoursUntilAppointment > fullHrs:
+		refundableAmount = totalPrePaidRounded
+		keptAmount = 0
+		tier = FullRefundTier
+
+	case hoursUntilAppointment >= partHrs:
+		keptAmount = protectedDeposit
+		refundableAmount = totalPrePaidRounded - keptAmount
+		if refundableAmount < 0 {
+			refundableAmount = 0
+		}
+		tier = PartialRefundTier
+
+	default:
+		keptAmount = totalPrePaidRounded
+		refundableAmount = 0
+		tier = NoRefundTier
+	}
+
+	return RefundCalculationResult{
+		TotalPrePaid:          totalPrePaidRounded,
+		ProtectedDeposit:      protectedDeposit,
+		RefundableAmount:      refundableAmount,
+		KeptAmount:            keptAmount,
+		HoursUntilAppointment: hoursUntilAppointment,
+		Tier:                  tier,
+	}
+}
+
+// ProcessCancellationRefund calculates and records refunds for a cancelled booking.
+// It processes refunds against completed payments on the booking up to the
+// calculated refundable amount, creating refund records in the database.
+// Returns the refund calculation and whether any refunds were processed.
+func ProcessCancellationRefund(
+	ctx context.Context,
+	bookingID string,
+	subtotal float64,
+	totalPrePaid float64,
+	startTime time.Time,
+	cancellationTime time.Time,
+	reason string,
+	actorID *string,
+) (*RefundCalculationResult, error) {
+	calc := CalculateRefundForCancellation(subtotal, totalPrePaid, cancellationTime, startTime)
+
+	if calc.RefundableAmount <= 0 {
+		return &calc, nil
+	}
+
+	// Get the booking's user info for refund routing.
+	var bookingUserID string
+	var isGuest bool
+	if err := db.DB.QueryRow(ctx, `
+		SELECT b.user_id, COALESCE(u.account_role = 'guest', false)
+		FROM bookings b
+		LEFT JOIN users u ON b.user_id = u.id
+		WHERE b.id = $1
+	`, bookingID).Scan(&bookingUserID, &isGuest); err != nil {
+		log.Printf("Failed to get booking user info for refund: %v", err)
+		// Non-fatal — we'll still process Square refunds but skip balance credits.
+	}
+
+	rows, err := db.DB.Query(ctx, `
+		SELECT id, amount, payment_method, square_payment_id, gift_card_id
+		FROM payments
+		WHERE booking_id = $1 AND status = 'completed' AND payment_method NOT IN ('discount', 'on_the_house')
+		ORDER BY created_at ASC
+	`, bookingID)
+	if err != nil {
+		log.Printf("Failed to fetch payments for refund: %v", err)
+		return &calc, nil
+	}
+	defer rows.Close()
+
+	refundRemaining := calc.RefundableAmount
+	// Track which Square payment IDs have already been refunded through Square.
+	// Multiple split payment records (deposit + balance) can share the same
+	// square_payment_id — we must only refund each Square payment once.
+	refundedSquareIDs := make(map[string]bool)
+
+	for rows.Next() {
+		if refundRemaining <= 0 {
+			break
+		}
+
+		var paymentID, paymentMethod string
+		var amount float64
+		var squarePaymentID *string
+		var giftCardID *string
+		if err := rows.Scan(&paymentID, &amount, &paymentMethod, &squarePaymentID, &giftCardID); err != nil {
+			log.Printf("Failed to scan payment row: %v", err)
+			continue
+		}
+
+		refundThisPayment := math.Min(amount, refundRemaining)
+		refundCents := int64(math.Round(refundThisPayment * 100))
+		var squareRefundID *string
+
+		switch paymentMethod {
+		case "online_square", "in_person_card":
+			// Card payments can be refunded through Square if we have a payment reference.
+			// Skip the Square API call if this square_payment_id was already processed
+			// (possible when split payment records share the same charge).
+			if squarePaymentID != nil && *squarePaymentID != "" && !refundedSquareIDs[*squarePaymentID] {
+				refundReq := square.RefundPaymentReq{
+					PaymentID:      *squarePaymentID,
+					Amount:         refundCents,
+					IdempotencyKey: paymentID + "-cancel-" + time.Now().Format("20060102150405"),
+					Reason:         reason,
+				}
+				result, sqErr := SquareClient.RefundPayment(ctx, refundReq)
+				if sqErr != nil {
+					log.Printf("Square refund failed for payment %s (will record refund locally): %v", paymentID, sqErr)
+				} else {
+					squareRefundID = &result.ID
+					refundedSquareIDs[*squarePaymentID] = true
+				}
+			} else if squarePaymentID != nil && refundedSquareIDs[*squarePaymentID] {
+				log.Printf("Square payment %s already refunded through split record %s — crediting balance for £%.2f", *squarePaymentID, paymentID, refundThisPayment)
+			}
+
+			// If Square refund failed or wasn't available, credit the user's balance.
+			// Guests don't get balance credits — admin handles those manually.
+			if squareRefundID == nil && bookingUserID != "" {
+				if isGuest {
+					log.Printf("Guest card refund (Square unavailable): booking %s, payment %s, amount £%.2f — admin must process at till", bookingID, paymentID, refundThisPayment)
+				} else {
+					log.Printf("Crediting £%.2f to user %s balance for card payment %s (Square refund unavailable)", refundThisPayment, bookingUserID, paymentID)
+					creditUserBalance(ctx, bookingUserID, bookingID, paymentID, refundThisPayment, reason)
+				}
+			}
+
+		case "giftcard":
+			if giftCardID == nil || *giftCardID == "" {
+				log.Printf("Giftcard payment %s has no gift_card_id — cannot refund to card. Skipping.", paymentID)
+				break
+			}
+			var expired bool
+			if err := db.DB.QueryRow(ctx, `
+				SELECT expiry_date IS NOT NULL AND expiry_date < NOW()
+				FROM gift_cards WHERE id = $1
+			`, *giftCardID).Scan(&expired); err != nil {
+				log.Printf("Failed to check gift card %s expiry: %v — proceeding with refund", *giftCardID, err)
+			} else if expired {
+				log.Printf("Gift card %s has expired — money retained by salon, no refund due for booking %s", *giftCardID, bookingID)
+				break
+			}
+			if _, err := db.DB.Exec(ctx, `
+				UPDATE gift_cards SET amount_remaining = amount_remaining + $1, last_used_at = NOW()
+				WHERE id = $2
+			`, refundThisPayment, *giftCardID); err != nil {
+				log.Printf("Failed to refund £%.2f to gift card %s: %v", refundThisPayment, *giftCardID, err)
+				break
+			}
+			if _, err := db.DB.Exec(ctx, `
+				INSERT INTO gift_card_transactions (gift_card_id, transaction_type, amount, reference_type, reference_id, user_id, notes)
+				VALUES ($1, 'refund', $2, 'booking', $3, $4, $5)
+			`, *giftCardID, refundThisPayment, bookingID, bookingUserID, "Refund from cancelled booking"); err != nil {
+				log.Printf("Failed to create gift card transaction for refund: %v", err)
+			}
+
+		case "cash":
+			if isGuest || bookingUserID == "" {
+				log.Printf("Guest cash refund: booking %s, payment %s, amount £%.2f — admin must process cash refund at till", bookingID, paymentID, refundThisPayment)
+			} else {
+				log.Printf("Crediting £%.2f to user %s balance for cash payment %s", refundThisPayment, bookingUserID, paymentID)
+				creditUserBalance(ctx, bookingUserID, bookingID, paymentID, refundThisPayment, reason)
+			}
+
+		default:
+			// discount, on_the_house — no real money to refund.
+			log.Printf("Skipping refund for payment %s with method %q (no money exchanged)", paymentID, paymentMethod)
+		}
+
+		record := RefundRecord{
+			PaymentID:      paymentID,
+			BookingID:      bookingID,
+			Amount:         refundThisPayment,
+			SquareRefundID: squareRefundID,
+			Status:         "completed",
+			Reason:         reason,
+			CreatedBy:      actorID,
+			CreatedAt:      time.Now(),
+		}
+
+		_, dbErr := db.DB.Exec(ctx, `
+			INSERT INTO refunds (payment_id, booking_id, amount, square_refund_id, status, reason, created_by, created_at)
+			VALUES ($1, $2, $3, $4, 'completed', $5, $6, $7)
+		`, record.PaymentID, record.BookingID, record.Amount, record.SquareRefundID, record.Reason, record.CreatedBy, record.CreatedAt)
+		if dbErr != nil {
+			log.Printf("Failed to create refund record for payment %s: %v", paymentID, dbErr)
+			continue
+		}
+
+		refundRemaining -= refundThisPayment
+	}
+
+	if bookingUserID != "" {
+		var loyaltyUsed bool
+		db.DB.QueryRow(ctx, "SELECT EXISTS(SELECT 1 FROM booking_discounts WHERE booking_id = $1 AND discount_source = 'loyalty')", bookingID).Scan(&loyaltyUsed)
+		if loyaltyUsed {
+			_, err := db.DB.Exec(ctx, "UPDATE users SET loyalty_stamps = loyalty_stamps + $1 WHERE id = $2", LoyaltyStampCost, bookingUserID)
+			if err != nil {
+				log.Printf("Failed to refund loyalty stamps for booking %s: %v", bookingID, err)
+			} else {
+				log.Printf("Refunded 10 loyalty stamps to user %s after cancellation of booking %s", bookingUserID, bookingID)
+			}
+		}
+	}
+
+	return &calc, nil
+}
+
+// creditUserBalance credits a refund amount to the user's gift card balance.
+// The refunds table (payment_id, booking_id, amount, reason, created_by, created_at)
+// provides the primary audit trail for FreeAgent reconciliation.
+func creditUserBalance(ctx context.Context, userID, bookingID, paymentID string, amount float64, reason string) {
+	_, err := db.DB.Exec(ctx, `
+		INSERT INTO user_giftcard_balances (user_id, balance, updated_at)
+		VALUES ($1, $2, NOW())
+		ON CONFLICT (user_id) DO UPDATE SET
+			balance = user_giftcard_balances.balance + EXCLUDED.balance,
+			updated_at = NOW()
+	`, userID, amount)
+	if err != nil {
+		log.Printf("Failed to credit user %s balance for refund of booking %s: %v", userID, bookingID, err)
+	}
+}
diff --git a/backend/handlers/payments/refunds_test.go b/backend/handlers/payments/refunds_test.go
new file mode 100644
index 0000000..4839f33
--- /dev/null
+++ b/backend/handlers/payments/refunds_test.go
@@ -0,0 +1,939 @@
+//go:build test && dev
+// +build test,dev
+
+package payments
+
+import (
+	"context"
+	"testing"
+	"time"
+
+	"crussell/db"
+	"crussell/testutils/fixtures"
+)
+
+// =============================================================================
+// CalculateRefundForCancellation - Pure function tests
+// =============================================================================
+
+func TestCalculateRefundForCancellation_FullRefund_Over72h(t *testing.T) {
+	now := time.Date(2099, 12, 28, 8, 0, 0, 0, time.UTC)
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC) // >72h away
+
+	result := CalculateRefundForCancellation(100, 50, now, start)
+
+	if result.Tier != "full_refund_72h" {
+		t.Errorf("expected tier 'full_refund_72h', got %q", result.Tier)
+	}
+	if result.RefundableAmount != 50 {
+		t.Errorf("expected refundable 50, got %.2f", result.RefundableAmount)
+	}
+	if result.KeptAmount != 0 {
+		t.Errorf("expected kept 0, got %.2f", result.KeptAmount)
+	}
+	if result.ProtectedDeposit != 50 {
+		t.Errorf("expected protected deposit 50, got %.2f", result.ProtectedDeposit)
+	}
+}
+
+func TestCalculateRefundForCancellation_PartialRefund_24to72h(t *testing.T) {
+	now := time.Date(2099, 12, 30, 8, 0, 0, 0, time.UTC) // ~50h before
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+
+	result := CalculateRefundForCancellation(100, 80, now, start)
+
+	if result.Tier != "partial_refund_24h_72h" {
+		t.Errorf("expected tier 'partial_refund_24h_72h', got %q", result.Tier)
+	}
+	// Protected deposit: min(80, 50) = 50
+	// Refundable: 80 - 50 = 30
+	if result.ProtectedDeposit != 50 {
+		t.Errorf("expected protected deposit 50, got %.2f", result.ProtectedDeposit)
+	}
+	if result.RefundableAmount != 30 {
+		t.Errorf("expected refundable 30, got %.2f", result.RefundableAmount)
+	}
+	if result.KeptAmount != 50 {
+		t.Errorf("expected kept 50, got %.2f", result.KeptAmount)
+	}
+}
+
+func TestCalculateRefundForCancellation_NoRefund_Under24h(t *testing.T) {
+	now := time.Date(2099, 12, 31, 9, 0, 0, 0, time.UTC) // 1h before
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+
+	result := CalculateRefundForCancellation(100, 100, now, start)
+
+	if result.Tier != "no_refund_under_24h" {
+		t.Errorf("expected tier 'no_refund_under_24h', got %q", result.Tier)
+	}
+	if result.RefundableAmount != 0 {
+		t.Errorf("expected refundable 0, got %.2f", result.RefundableAmount)
+	}
+	if result.KeptAmount != 100 {
+		t.Errorf("expected kept 100, got %.2f", result.KeptAmount)
+	}
+}
+
+func TestCalculateRefundForCancellation_NoShow_KeptAll(t *testing.T) {
+	now := time.Date(2099, 12, 31, 12, 0, 0, 0, time.UTC) // past start
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+
+	result := CalculateRefundForCancellation(100, 50, now, start)
+
+	if result.Tier != "no_refund_under_24h" {
+		t.Errorf("expected tier 'no_refund_under_24h', got %q", result.Tier)
+	}
+	if result.RefundableAmount != 0 {
+		t.Errorf("expected refundable 0 for no-show, got %.2f", result.RefundableAmount)
+	}
+}
+
+func TestCalculateRefundForCancellation_ProtectedDepositCappedAt50Pct(t *testing.T) {
+	now := time.Date(2099, 12, 30, 8, 0, 0, 0, time.UTC)
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+
+	// Paid 200 on a 300 total — protected deposit caps at 150 (50% of 300)
+	result := CalculateRefundForCancellation(300, 200, now, start)
+
+	if result.ProtectedDeposit != 150 {
+		t.Errorf("expected protected deposit 150 (50%% of 300), got %.2f", result.ProtectedDeposit)
+	}
+	if result.RefundableAmount != 50 {
+		t.Errorf("expected refundable 50 (200-150), got %.2f", result.RefundableAmount)
+	}
+}
+
+func TestCalculateRefundForCancellation_PaidLessThan50Pct(t *testing.T) {
+	now := time.Date(2099, 12, 30, 8, 0, 0, 0, time.UTC)
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+
+	// Paid 30 on a 200 total — protected deposit = min(30, 100) = 30
+	result := CalculateRefundForCancellation(200, 30, now, start)
+
+	if result.ProtectedDeposit != 30 {
+		t.Errorf("expected protected deposit 30, got %.2f", result.ProtectedDeposit)
+	}
+	if result.RefundableAmount != 0 {
+		t.Errorf("expected refundable 0 (30-30), got %.2f", result.RefundableAmount)
+	}
+}
+
+func TestCalculateRefundForCancellation_Exact72hBoundary(t *testing.T) {
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	now := start.Add(-72 * time.Hour) // exactly 72h before (not >72)
+
+	result := CalculateRefundForCancellation(100, 100, now, start)
+
+	// Exactly 72h is NOT >72 — falls into partial refund tier
+	if result.Tier != "partial_refund_24h_72h" {
+		t.Errorf("expected partial refund at exactly 72h, got %q", result.Tier)
+	}
+}
+
+func TestCalculateRefundForCancellation_Exact24hBoundary(t *testing.T) {
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	now := start.Add(-24 * time.Hour) // exactly 24h before
+
+	result := CalculateRefundForCancellation(100, 100, now, start)
+
+	// Exactly 24h should be >=24 — partial refund
+	if result.Tier != "partial_refund_24h_72h" {
+		t.Errorf("expected partial refund at exactly 24h, got %q", result.Tier)
+	}
+}
+
+// =============================================================================
+// ProcessCancellationRefund - Integration tests
+// =============================================================================
+
+func TestProcessCancellationRefund_CreatesRefundRecords(t *testing.T) {
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+
+	_, err = db.DB.Exec(context.Background(),
+		"UPDATE bookings SET deposit_required = true WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to set deposit_required: %v", err)
+	}
+
+	// Add a completed payment
+	paymentID, err := fixtures.CreateTestPayment(db.DB, bookingID, 50, "online_square", "deposit", "completed")
+	if err != nil {
+		t.Fatalf("failed to create payment: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, paymentID) })
+
+	// Cancel >72h before — full refund expected
+	now := time.Date(2099, 12, 28, 8, 0, 0, 0, time.UTC)
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+
+	result, err := ProcessCancellationRefund(context.Background(), bookingID, 50, 50, start, now, "client_cancelled", &userID)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result == nil {
+		t.Fatal("expected non-nil result")
+	}
+	if result.RefundableAmount != 50 {
+		t.Errorf("expected refundable 50, got %.2f", result.RefundableAmount)
+	}
+
+	// Check refund record was created
+	var refundCount int
+	db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM refunds WHERE booking_id = $1", bookingID).Scan(&refundCount)
+	if refundCount != 1 {
+		t.Errorf("expected 1 refund record, got %d", refundCount)
+	}
+}
+
+func TestProcessCancellationRefund_NoRefundWhenNotNeeded(t *testing.T) {
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+
+	// Cancel <24h before — refundable should be 0
+	now := time.Date(2099, 12, 31, 9, 0, 0, 0, time.UTC)
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+
+	result, err := ProcessCancellationRefund(context.Background(), bookingID, 100, 0, start, now, "no_show", &userID)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result == nil {
+		t.Fatal("expected non-nil result")
+	}
+	if result.RefundableAmount != 0 {
+		t.Errorf("expected refundable 0, got %.2f", result.RefundableAmount)
+	}
+}
+
+func TestProcessCancellationRefund_NoPaymentsNoop(t *testing.T) {
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	now := time.Date(2099, 12, 28, 8, 0, 0, 0, time.UTC)
+
+	result, err := ProcessCancellationRefund(context.Background(), bookingID, 100, 0, start, now, "client_cancelled", &userID)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result.RefundableAmount != 0 {
+		t.Errorf("expected refundable 0 when nothing paid, got %.2f", result.RefundableAmount)
+	}
+
+	var refundCount int
+	db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM refunds WHERE booking_id = $1", bookingID).Scan(&refundCount)
+	if refundCount != 0 {
+		t.Errorf("expected 0 refund records, got %d", refundCount)
+	}
+}
+
+// =============================================================================
+// ProcessCancellationRefund — gift card refund routing
+// =============================================================================
+
+func TestProcessCancellationRefund_GiftCardCreditsUserBalance(t *testing.T) {
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	_, err = db.DB.Exec(context.Background(), "UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to confirm booking: %v", err)
+	}
+
+	var giftCardID string
+	if err := db.DB.QueryRow(context.Background(), `
+		INSERT INTO gift_cards (total_funds_added, amount_remaining, created_by, is_inventory, expiry_date, last_used_at)
+		VALUES (100, 40, $1, false, NULL, NOW())
+		RETURNING id
+	`, userID).Scan(&giftCardID); err != nil {
+		t.Fatalf("failed to create gift card: %v", err)
+	}
+	t.Cleanup(func() {
+		db.DB.Exec(context.Background(), "DELETE FROM gift_card_transactions WHERE gift_card_id = $1", giftCardID)
+		db.DB.Exec(context.Background(), "DELETE FROM gift_cards WHERE id = $1", giftCardID)
+	})
+
+	var paymentID string
+	if err := db.DB.QueryRow(context.Background(), `
+		INSERT INTO payments (booking_id, payment_type, payment_method, status, amount, gift_card_id, created_at, updated_at)
+		VALUES ($1, 'full', 'giftcard', 'completed', 60, $2, NOW(), NOW())
+		RETURNING id
+	`, bookingID, giftCardID).Scan(&paymentID); err != nil {
+		t.Fatalf("failed to create giftcard payment: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, paymentID) })
+
+	// Booking is far in the future — full refund.
+	farFuture := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	result, err := ProcessCancellationRefund(
+		context.Background(), bookingID, 100, 60,
+		farFuture, time.Now(), "client_cancelled", &userID,
+	)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result.RefundableAmount != 60 {
+		t.Errorf("expected refundable 60 (full refund >72h), got %.2f", result.RefundableAmount)
+	}
+
+	var amountRemaining float64
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT amount_remaining FROM gift_cards WHERE id = $1", giftCardID).Scan(&amountRemaining)
+	if err != nil {
+		t.Fatalf("failed to query gift card balance: %v", err)
+	}
+	if amountRemaining != 100 {
+		t.Errorf("expected gift card amount_remaining 100 (40 + 60), got %.2f", amountRemaining)
+	}
+
+	// Verify refund record exists (primary audit trail for cancellation refunds).
+	var refundCount int
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM refunds WHERE booking_id = $1", bookingID).Scan(&refundCount)
+	if err != nil {
+		t.Fatalf("failed to query refunds: %v", err)
+	}
+	if refundCount != 1 {
+		t.Errorf("expected 1 refund record, got %d", refundCount)
+	}
+
+	var txCount int
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM gift_card_transactions WHERE gift_card_id = $1 AND transaction_type = 'refund'", giftCardID).Scan(&txCount)
+	if err != nil {
+		t.Fatalf("failed to query gift card transactions: %v", err)
+	}
+	if txCount != 1 {
+		t.Errorf("expected 1 gift card refund transaction, got %d", txCount)
+	}
+}
+
+func TestProcessCancellationRefund_CashCreditsUserBalance(t *testing.T) {
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	_, err = db.DB.Exec(context.Background(), "UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to confirm booking: %v", err)
+	}
+
+	// Create a cash payment of 30.
+	paymentID, err := fixtures.CreateTestPayment(db.DB, bookingID, 30, "cash", "deposit", "completed")
+	if err != nil {
+		t.Fatalf("failed to create cash payment: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, paymentID) })
+
+	farFuture := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	result, err := ProcessCancellationRefund(
+		context.Background(), bookingID, 100, 30,
+		farFuture, time.Now(), "client_cancelled", &userID,
+	)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result.RefundableAmount != 30 {
+		t.Errorf("expected refundable 30, got %.2f", result.RefundableAmount)
+	}
+
+	// Verify user balance was credited.
+	var balance float64
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COALESCE(balance, 0) FROM user_giftcard_balances WHERE user_id = $1", userID).Scan(&balance)
+	if err != nil {
+		t.Fatalf("failed to query balance: %v", err)
+	}
+	if balance != 30 {
+		t.Errorf("expected user balance 30, got %.2f", balance)
+	}
+}
+
+func TestProcessCancellationRefund_CardSquareRefundWithoutBalanceCredit(t *testing.T) {
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	_, err = db.DB.Exec(context.Background(), "UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to confirm booking: %v", err)
+	}
+
+	// Create an online_square payment — this will be handled by Square mock.
+	var paymentID string
+	paymentID, err = fixtures.CreateTestPayment(db.DB, bookingID, 100, "online_square", "full", "completed")
+	if err != nil {
+		t.Fatalf("failed to create card payment: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, paymentID) })
+
+	farFuture := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	result, err := ProcessCancellationRefund(
+		context.Background(), bookingID, 100, 100,
+		farFuture, time.Now(), "client_cancelled", &userID,
+	)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result.RefundableAmount != 100 {
+		t.Errorf("expected refundable 100, got %.2f", result.RefundableAmount)
+	}
+
+	// In dev/test the payment has no square_payment_id, so Square cannot process
+	// the refund and the amount falls through to a balance credit. In production
+	// with a real square_payment_id the Square API would handle the refund instead.
+	var balance float64
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COALESCE(balance, 0) FROM user_giftcard_balances WHERE user_id = $1", userID).Scan(&balance)
+	if err != nil {
+		t.Fatalf("failed to query balance: %v", err)
+	}
+	if balance <= 0 {
+		t.Errorf("expected a balance credit (Square refund unavailable in mock), got %.2f", balance)
+	}
+}
+
+// =============================================================================
+// ProcessCancellationRefund — non-money payment methods (discount, on_the_house)
+// =============================================================================
+
+func TestProcessCancellationRefund_DiscountPaymentSkipped(t *testing.T) {
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+
+	_, err = db.DB.Exec(context.Background(), "UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to confirm booking: %v", err)
+	}
+
+	// Create a discount payment (no real money exchanged).
+	paymentID, err := fixtures.CreateTestPayment(db.DB, bookingID, 20, "discount", "partial", "completed")
+	if err != nil {
+		t.Fatalf("failed to create discount payment: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, paymentID) })
+
+	farFuture := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	result, err := ProcessCancellationRefund(
+		context.Background(), bookingID, 100, 20,
+		farFuture, time.Now(), "client_cancelled", &userID,
+	)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result.RefundableAmount != 20 {
+		t.Errorf("expected refundable 20 (full refund >72h), got %.2f", result.RefundableAmount)
+	}
+
+	// Discount payments should NOT create a balance credit.
+	var balance float64
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COALESCE(balance, 0) FROM user_giftcard_balances WHERE user_id = $1", userID).Scan(&balance)
+	if err != nil {
+		balance = 0
+	}
+	if balance != 0 {
+		t.Errorf("expected no balance credit for discount payment, got %.2f", balance)
+	}
+}
+
+func TestProcessCancellationRefund_OnTheHousePaymentSkipped(t *testing.T) {
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+
+	_, err = db.DB.Exec(context.Background(), "UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to confirm booking: %v", err)
+	}
+
+	// Create an on_the_house payment (no real money exchanged).
+	paymentID, err := fixtures.CreateTestPayment(db.DB, bookingID, 100, "on_the_house", "full", "completed")
+	if err != nil {
+		t.Fatalf("failed to create on_the_house payment: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, paymentID) })
+
+	farFuture := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	result, err := ProcessCancellationRefund(
+		context.Background(), bookingID, 100, 100,
+		farFuture, time.Now(), "client_cancelled", &userID,
+	)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result.RefundableAmount != 100 {
+		t.Errorf("expected refundable 100 (full refund >72h), got %.2f", result.RefundableAmount)
+	}
+
+	// on_the_house payments should NOT create a balance credit.
+	var balance float64
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COALESCE(balance, 0) FROM user_giftcard_balances WHERE user_id = $1", userID).Scan(&balance)
+	if err != nil {
+		balance = 0
+	}
+	if balance != 0 {
+		t.Errorf("expected no balance credit for on_the_house payment, got %.2f", balance)
+	}
+}
+
+// =============================================================================
+// ProcessCancellationRefund — missing user_id edge case
+// =============================================================================
+
+func TestProcessCancellationRefund_MissingUserID_LogsWarning(t *testing.T) {
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+
+	_, err = db.DB.Exec(context.Background(), "UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to confirm booking: %v", err)
+	}
+
+	// Create a cash payment.
+	paymentID, err := fixtures.CreateTestPayment(db.DB, bookingID, 50, "cash", "deposit", "completed")
+	if err != nil {
+		t.Fatalf("failed to create cash payment: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, paymentID) })
+
+	// Set user_id to NULL on the booking to simulate a purged guest account.
+	_, err = db.DB.Exec(context.Background(), "UPDATE bookings SET user_id = NULL WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to nullify booking user_id: %v", err)
+	}
+
+	farFuture := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	result, err := ProcessCancellationRefund(
+		context.Background(), bookingID, 100, 50,
+		farFuture, time.Now(), "client_cancelled", nil,
+	)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result.RefundableAmount != 50 {
+		t.Errorf("expected refundable 50, got %.2f", result.RefundableAmount)
+	}
+
+	// Refund record should still be created even without user_id.
+	var refundCount int
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM refunds WHERE booking_id = $1", bookingID).Scan(&refundCount)
+	if err != nil {
+		t.Fatalf("failed to query refunds: %v", err)
+	}
+	if refundCount != 1 {
+		t.Errorf("expected 1 refund record (user_id-less), got %d", refundCount)
+	}
+}
+
+// =============================================================================
+// ProcessCancellationRefund — guest users must NOT get balance credits
+// =============================================================================
+
+func TestProcessCancellationRefund_GuestGiftcardDoesNotCreditBalance(t *testing.T) {
+	resetTestData(t)
+
+	// Create a user and promote them to guest role.
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+	_, err = db.DB.Exec(context.Background(), "UPDATE users SET account_role = 'guest' WHERE id = $1", userID)
+	if err != nil {
+		t.Fatalf("failed to set guest role: %v", err)
+	}
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+
+	_, err = db.DB.Exec(context.Background(), "UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to confirm booking: %v", err)
+	}
+
+	// Create a gift card payment.
+	paymentID, err := fixtures.CreateTestPayment(db.DB, bookingID, 50, "giftcard", "deposit", "completed")
+	if err != nil {
+		t.Fatalf("failed to create giftcard payment: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, paymentID) })
+
+	farFuture := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	result, err := ProcessCancellationRefund(
+		context.Background(), bookingID, 100, 50,
+		farFuture, time.Now(), "client_cancelled", &userID,
+	)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result.RefundableAmount != 50 {
+		t.Errorf("expected refundable 50, got %.2f", result.RefundableAmount)
+	}
+
+	// Guest must NOT have a balance credit.
+	var balance float64
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COALESCE(balance, 0) FROM user_giftcard_balances WHERE user_id = $1", userID).Scan(&balance)
+	if err != nil {
+		// No row means balance is 0 — this is the expected outcome.
+		balance = 0
+	}
+	if balance != 0 {
+		t.Errorf("expected guest balance 0 (guests do not receive balance credits), got %.2f", balance)
+	}
+
+	// Refund record should still exist.
+	var refundCount int
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM refunds WHERE booking_id = $1", bookingID).Scan(&refundCount)
+	if err != nil {
+		t.Fatalf("failed to query refunds: %v", err)
+	}
+	if refundCount != 1 {
+		t.Errorf("expected 1 refund record for guest, got %d", refundCount)
+	}
+}
+
+func TestProcessCancellationRefund_GuestCashDoesNotCreditBalance(t *testing.T) {
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+	_, err = db.DB.Exec(context.Background(), "UPDATE users SET account_role = 'guest' WHERE id = $1", userID)
+	if err != nil {
+		t.Fatalf("failed to set guest role: %v", err)
+	}
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+
+	_, err = db.DB.Exec(context.Background(), "UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to confirm booking: %v", err)
+	}
+
+	// Create a cash payment.
+	paymentID, err := fixtures.CreateTestPayment(db.DB, bookingID, 30, "cash", "full", "completed")
+	if err != nil {
+		t.Fatalf("failed to create cash payment: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, paymentID) })
+
+	farFuture := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+	result, err := ProcessCancellationRefund(
+		context.Background(), bookingID, 100, 30,
+		farFuture, time.Now(), "client_cancelled", &userID,
+	)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result.RefundableAmount != 30 {
+		t.Errorf("expected refundable 30, got %.2f", result.RefundableAmount)
+	}
+
+	// Guest must NOT have a balance credit.
+	var balance float64
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COALESCE(balance, 0) FROM user_giftcard_balances WHERE user_id = $1", userID).Scan(&balance)
+	if err != nil {
+		balance = 0
+	}
+	if balance != 0 {
+		t.Errorf("expected guest balance 0 (guests do not receive balance credits), got %.2f", balance)
+	}
+}
+
+// =============================================================================
+// Refund with split payments — verify dedup when 2 records share square_payment_id
+// =============================================================================
+
+func TestProcessCancellationRefund_SplitPayment_DeduplicatesSquareRefund(t *testing.T) {
+	// When a single Square charge is split into 2 DB payment records (deposit + balance)
+	// sharing the same square_payment_id, the refund loop must only call Square once.
+	// The second record should be credited to the user balance instead.
+	resetTestData(t)
+
+	userID, err := fixtures.CreateTestUser(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create user: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteUser(db.DB, userID) })
+
+	serviceID, err := fixtures.CreateTestService(db.DB)
+	if err != nil {
+		t.Fatalf("failed to create service: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteService(db.DB, serviceID) })
+
+	bookingID, err := fixtures.CreateTestBookingAtTime(db.DB, userID, serviceID,
+		time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC))
+	if err != nil {
+		t.Fatalf("failed to create booking: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeleteBooking(db.DB, bookingID) })
+
+	_, err = db.DB.Exec(context.Background(), "UPDATE bookings SET status = 'confirmed' WHERE id = $1", bookingID)
+	if err != nil {
+		t.Fatalf("failed to confirm booking: %v", err)
+	}
+
+	sameSquareID := "sqp_split_dedup_test"
+	now := time.Now()
+
+	// Create 2 payment records sharing the same square_payment_id — simulating a
+	// split charge where one Square payment was recorded as deposit + balance.
+	svc := NewPaymentService()
+
+	pid1, err := svc.CreatePaymentRecord(context.Background(), PaymentRecord{
+		BookingID:       bookingID,
+		PaymentType:     "deposit",
+		PaymentMethod:   "online_square",
+		Status:          "completed",
+		Amount:          25.00,
+		SquarePaymentID: &sameSquareID,
+		CreatedAt:       now,
+		UpdatedAt:       now,
+	}, nil)
+	if err != nil {
+		t.Fatalf("failed to create deposit record: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, pid1) })
+
+	pid2, err := svc.CreatePaymentRecord(context.Background(), PaymentRecord{
+		BookingID:       bookingID,
+		PaymentType:     "balance",
+		PaymentMethod:   "online_square",
+		Status:          "completed",
+		Amount:          25.00,
+		SquarePaymentID: &sameSquareID,
+		CreatedAt:       now,
+		UpdatedAt:       now,
+	}, nil)
+	if err != nil {
+		t.Fatalf("failed to create balance record: %v", err)
+	}
+	t.Cleanup(func() { fixtures.DeletePayment(db.DB, pid2) })
+
+	// Cancel 72+ hours before → full refund of £50.
+	farFuture := time.Date(2099, 12, 28, 8, 0, 0, 0, time.UTC)
+	start := time.Date(2099, 12, 31, 10, 0, 0, 0, time.UTC)
+
+	result, err := ProcessCancellationRefund(
+		context.Background(), bookingID, 100, 50,
+		start, farFuture, "client_cancelled", &userID,
+	)
+	if err != nil {
+		t.Fatalf("ProcessCancellationRefund failed: %v", err)
+	}
+	if result.RefundableAmount != 50 {
+		t.Errorf("expected refundable 50, got %.2f", result.RefundableAmount)
+	}
+
+	// Should have created 1 Square refund (for the deposit record) and credited
+	// the balance portion via user balance.
+	var refundCount int
+	err = db.DB.QueryRow(context.Background(),
+		"SELECT COUNT(*) FROM refunds WHERE booking_id = $1", bookingID).Scan(&refundCount)
+	if err != nil {
+		t.Fatalf("failed to query refunds: %v", err)
+	}
+	if refundCount != 2 {
+		t.Errorf("expected 2 refund records (1 Square + 1 balance credit), got %d", refundCount)
+	}
+
+}