VAT treatment of vouchers

An important VAT topic that affects many businesses – the use and treatment of vouchers, which are often used to incentivise customer purchases.

Since 1 January 2019, new rules and definitions have applied in the UK to certain types of vouchers. These changes brought the UK in to line with similar EU changes, and were aimed at simplifying the VAT treatment of vouchers, especially where the voucher can be used more widely than just within the UK, ensuring a uniform approach with the EU.

Despite the intentions behind these changes, the VAT rules for vouchers remain a complex area, and Tribunal cases following the changes have highlighted this complexity. Misunderstanding the VAT rules for vouchers can lead to compliance risks and potential VAT errors. To help clarify understanding, we will go over the main principles of the VAT treatment of vouchers and look at practical considerations for businesses.

Firstly, what is a voucher?

According to HMRC a voucher can be:

Physical or electronic in nature
Supplied for a consideration (e.g. a payment) and provide a right to receive goods and services to their face value.
Used as a part payment towards goods or services

Examples of vouchers include:

Gift cards or vouchers
Phone cards
Book tokens
Electronic top-up cards

Types of vouchers:

There are two types of vouchers for VAT purposes: a single-purpose voucher (SPV) or multi-purpose voucher (MPV).

SPV

An SPV is one where:

The final transaction is known when the voucher is issued and where it can only be used for goods and services at a single rate of VAT.
VAT must be accounted for on the issue of an SPV, and any subsequent sale will be treated as a supply of the underlying goods or services with VAT accounted for accordingly.
Consequently, the issuer will no longer benefit from any non-redemption of vouchers, as VAT will still be due even if the voucher is never used.

Since the changes, many more vouchers are now regarded as single-purpose vouchers.

An MPV, on the other hand:

The actual issue or resale of this type of voucher is no longer treated as a supply for VAT purposes.
Is one that can be used for different goods or services, even if the underlying supplies are liable to VAT at the same rate.
In this case, VAT is only payable by the issuer when the goods or services are provided, and any prior transfer of multi-purpose vouchers is not subject to VAT.

Recent cases

The following tribunal cases support the importance of understanding the correct nature of the supply for VAT purposes and in the case of M-Gbr particularly when electronic vouchers are sold cross-border.

M-GbR vs Finanzamt O

This ruling concerned the Court of Justice of the European Union (CJEU) and the VAT treatment of electronic vouchers. These vouchers were prepaid codes that allowed users to top up their accounts to purchase digital content (i.e. electronically supplied services). The credits were only redeemable in Germany but were sold through cross border distributors. This case was central in distinguishing the different characteristics between SPV’s and MPV’s.

The CJEU found that the electronic vouchers were designed for use exclusively in Germany (despite consumers trying to manipulate the voucher coding and redeem outside of Germany) and so VAT was due on the resale of the cards under the SPV rules.

Go City Ltd

This First Tier Tribunal (FTT) case considered Go City’s supply of its tourist passes. These passes allowed consumers to access a variety of sights and activities in London, and in HMRC’s view these were a single supply of sightseeing packages (as an SPV), or in Go City’s view they were provided with no single, specific, attributable supply, and therefore outside the scope of VAT (as an MPV) until the voucher was redeemed.

The FTT ruling in favour of Go City Ltd, determining that these passes were multi-purpose vouchers. In the view of the Tribunal the passes did not serve as tickets for specific, predetermined services at the time of purchase. Instead, they offered the purchaser flexibility in choosing which attractions to visit, the attractions having varied VAT rates (e.g., standard-rated; VAT exempt museum admissions, and zero-rated transportation services).

Key considerations

Understanding the differences between SPVs and MPVs is crucial in determining the correct VAT treatment and timing of any VAT due.
As the issue or resale of an MPV is not a supply for VAT purposes, no VAT invoice is issued and input VAT on purchase incurred may not be recoverable.
Review which goods or services can be purchased with the voucher and if the voucher can be used in several different countries.

In summary

While the new changes have been in place for several years, this remains a somewhat complex and confusing area, and so we would urge that businesses operating SPV or MPV schemes who are facing uncertainties relating to specific transactions should seek further clarification from a VAT specialist.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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