Rules for the tax treatment of vouchers will be simplified from January.

The government will implement an EU Directive on the VAT treatment of vouchers in time for the required date of 1 January 2019. This will simplify the rules for the tax treatment of vouchers, especially where they can be used either in the UK or more widely in the EU. This will prevent either non-taxation or double taxation of goods or services which relate to vouchers.

Vouchers, in this context, are gift cards and gift tokens, with examples including simple book tokens, gift vouchers, and electronic vouchers purchased from specialist businesses. The changes do not apply to discount vouchers or money-off tokens.

Under current UK VAT legislation, the customer is deemed to be receiving two supplies:

  • a voucher; and
  • an underlying supply of goods or services.

The measure makes it clear that for VAT purposes there will no longer be a separate supply of a voucher. Instead the rules will be simplified so that there is only the supply of the underlying goods or services, which will be provided in exchange for the voucher at a later date.

Existing legislation refers to face value vouchers and deems the supply of such a voucher to be a supply of services. The new rules will refer to a voucher issued for consideration in physical or electronic form in relation to which a number of conditions must be met:

  • one or more persons are under an obligation to accept it as consideration or part-consideration for the supply of goods or services
  • the identities of those goods or services and of their potential suppliers are limited and expressly indicated
  • is transferable by gift.

The rules will exclude discount vouchers, transport tickets, admission tickets and postage stamps.

Existing legislation identifies vouchers for goods or services where only one VAT rate applies (single purpose) and vouchers where several VAT rates could apply because the voucher can be used to buy different products. The latter are then subdivided into:

  1. credit vouchers, where the issuer is not generally the redeemer and
  2. retailer vouchers where the retailer does both issue and redeem. With single purpose vouchers, any VAT due is paid when the voucher is issued or subsequently transferred (but not when it is redeemed). With credit vouchers, any VAT due is paid when the voucher is redeemed, whereas with retailer vouchers, any VAT due is paid when the voucher is transferred after issue and when it is redeemed.

The new rules will simply refer to single purpose vouchers and multi-purpose vouchers. A single purpose voucher will be one where, at the time of issue, both the liability to VAT and the place of supply of the underlying goods or services are known. Any VAT due on those underlying goods or services is paid at the point of issue of the voucher and at the point of each transfer of it, where these are done for consideration. VAT is not payable when the voucher is redeemed, but if the business redeeming the voucher in exchange for taxable goods or services is different from the business which issued it, there is also a supply of those goods or services from the former business to the latter.

A multi-purpose voucher will be one which is not a single purpose voucher (for example a multi-purpose voucher will be akin to credit and retailer vouchers currently provided for under Schedule 10A). Any VAT due is only payable when the voucher is redeemed for goods or services. The consideration for that supply will be amount last paid for the voucher or, in the absence of this information, its face value.

There will be a new section in the VAT Act 1994 to deal with postage stamps to maintain the current treatment.

Article from ACCA In Practice