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Article from the ACCA:

HMRC has released comments following a recent face value vouchers European Court of Justice (ECJ) case. This alters the tax point for recognition of a supply.

Lebara Ltd is a telecommunication business that allows international calls to be made by customers based in other EU countries. Its supplies are made available through face value vouchers. These vouchers are sold by Lebara Ltd to distributors who supply them to end users or onto other intermediate distributors.

The question posed to the ECJ was: what was being supplied and how such services via vouchers should be taxed? The courts decided that there was a supply by Lebara Ltd to its distributors and therefore not a supply to end users who redeem the vouchers.

Face value vouchers are any voucher, token or stamp whether physical or electronic that carries the right to receive goods or services to a value shown or contained within it. The current rules in accordance with Schedule 10A VAT Act 1994 categorise face value vouchers as retail vouchers or credit vouchers.

  • retail vouchers are vouchers issued by the same person who will redeem it
  • credit vouchers are any vouchers that are issued by one person but can be used for good or services from another person.

What this means in the UK is that Schedule 10A VAT Act 1994 the legislation for these types of vouchers is inconsistent with the decision and therefore EU legislation. The changes will affect all single purpose vouchers regardless of whether they are retail or credit vouchers. Single purpose vouchers are those that carry the right to receive only one type for goods or services which is subject to a single rate of VAT, for example:

  • prepaid telephone card can only be redeemed for telecommunication services
  • vouchers that can be redeemed only for electronic supplied services even if the electronic service can have slightly different form such as streaming music, videos and games.

The change will remove the special rules for face value vouchers. Where a single purpose voucher is sold either by a retailer or by a distributor it will be treated as a supply for goods or services for which it can be redeemed, regardless of who issues the vouchers.

The issue is with identifying these single purpose vouchers. The other issue is that the saving that businesses had on the non-redemption of vouchers is lost as they will have to account for VAT on the issue of the voucher. It seems odd that VAT will be due on vouchers regardless of whether they are redeemed, with no right to claim back VAT on non-redemption.

The proposal is to change the VAT treatment retrospectively from 10 May 2012; however, to allow businesses a catch-up period they will have until the Finance Bill is granted Royal Assent to account for VAT under the new rules, with the intervening period being adjusted later. HMRC is encouraging businesses to account for VAT under the new rules immediately.

The proposed changes to Schedule 10A VAT Act 1994 will include: 

7A) Paragraphs 2 to 4, 6 and 7 do not apply in relation to the issue, or any subsequent supply, of a face-value voucher that presents a right to receive goods or services of one type which are subject to a single rate of VAT.

There are transitional provisions in place for supplies that were made before 10 May 2012, as explained in HMRC’s Brief. In addition there are four examples that help illustrate the changes within the guidance. If you believe that this case affects you or your clients, view Revenue & Customs Brief 12/12.

Additional information

The changes are appropriate as the EU has published its final proposals on harmonising the VAT treatment of vouchers across the EU, while the draft legislation is available to view, as is the full case, C-520/10, Lebara Ltd v HM Revenue & Customs [2012].