The VAT treatment of vouchers changed with effect from 1 January 2019. Vouchers include gift cards and gift tokens, for example simple book tokens, gift vouchers, and electronic vouchers purchased from specialist businesses. The changes do not apply to discount vouchers or money-off tokens.
Who does it effect?
Businesses such as retailers and distributors who buy, sell or redeem vouchers are those most likely to be affected.
About the new legislation?
Until 1 January 2019, UK VAT legislation considered vouchers to be either subject to VAT upon issue or when they were redeemed against a supply of goods or services.
The new EU’s Vouchers Directive, to which the UK must now comply, aims to simplify the rules for the tax treatment of vouchers, ensuring the amounts customers pay when using vouchers is better reflected in the tax base. It also seeks to harmonise the VAT treatment of vouchers, by providing new, clear rules which separate ‘single purpose vouchers’ from the more complex ‘multipurpose vouchers’, and tax these at different points (issue, transfer, redemption), depending on what is being supplied.
The new legislation is not concerned with the scope of VAT and whether VAT is due, but only the question of when VAT is due. It also does not apply to vouchers issued before 1 January 2019.
Single purchase vouchers (SPV)
The definition of SPVs will now be widened to include all vouchers which can be redeemed for goods and services that are subject to a single rate of VAT and where the place of supply of the ultimate goods or services is known at the time of issue. From 1 January 2019, VAT will be due at the point of issue of the voucher, as opposed to when redeemed / when the goods and services are provided, meaning that VAT is accounted for earlier than previous legislation. Any further sale of the voucher will be considered as a supply of the goods or services themselves and VAT accounted at the time of the sale.
Multipurpose vouchers (MPV)
Prior to 1 January MPVs were vouchers which can be used to pay for different goods and services even with the same VAT rate. With effect from 1 January 2019, when a voucher that provides for different goods and services at the same rate of VAT, VAT will also be accountable at the point of issue. Therefore, businesses will need to be check if they are affected by these changes by reviewing the goods and services that can be purchased or redeemed with the voucher.
For those that will continue to issue MPVs to pay for different goods and services with a different VAT rate there is also a change as VAT will no longer be due on the sales price for the voucher but on the price paid by the last person who purchased the MPV. If this price is not known, or it is below the face value VAT will be due on the face value. This could mean in some cases VAT is accounted for on a higher price. The timing for the accounting for VAT will continue as before when the voucher is redeemed. So MPVs will be restricted mainly to credit vouchers and retail vouchers, as they clearly could be for goods and services with a different rate of VAT.
Intermediaries buying and selling MPVs in their own name will also be affected by the changes as the sale of the MPV by the intermediary will now not be considered a supply for VAT. The intermediary will no longer be capable of issuing a VAT invoice for the sale of MPVs and so will not be able to reclaim any VAT incurred on costs relating to the supply of the voucher. Intermediaries therefore should consider changing their business model so they act as agent for the sale of such vouchers instead of selling them under their own name. If they act as agent then turnover for VAT will drop.
Impact of the change on businesses
Changes may be required in order to implement the new rules, particularly among retailers, online businesses and software companies, including businesses which redeem vouchers, those which supply vouchers, and those which use vouchers as part of their business promotion schemes.
These businesses should review their systems and processes in order to identify the nature of the vouchers sold. They should also ensure their accounting systems or processes to are correct to take account of the new VAT accounting from 1 January 2019.
How we can help
This is a complex area for VAT and if you are affected by the changes highlighted above or have any questions please let us know as we can assist and advise on how the changes will affect you subject to the nature of the vouchers issued.
Contact your usual Beavis Morgan Partner for further information and assistance.