VAT treatment of vouchers harmonised with the EU

The UK may be preparing to leave the EU from March 2019, but legislation in some areas which will bring us closer to (rather than further from) European laws is still set to take effect before Brexit kicks in.

One area is the VAT treatment of vouchers – such as gift cards, or certificates used to buy products or services – for which draft legislation was published by the UK Government in July this year, and which will take effect from 1 January 2019, applying to all vouchers issued after that date.

The legislation will incorporate into UK law new provisions from the EU Vouchers Directive (Directive 2016/1065) that harmonises the treatment of vouchers across the EU.

The aim of the Directive is to resolve situations where a voucher is issued in one Member State and used in another, or where vouchers are traded; it sets out the definitions separating single-purpose vouchers, such as gift vouchers currently used to purchase one type of goods or services, from the more complex, multi-purpose vouchers which may cover a range of goods or a combination of goods and services. It also establishes rules to determine the taxable value of transactions in both cases.

The changes are designed to prevent either non-taxation or double taxation of the goods or services relating to the vouchers, ensuring the right amount of VAT is charged on what the customer pays, irrespective of whether payment is with a voucher. The new rules will not apply to discount vouchers or money-off tokens.

What are the consequences relating to the VAT treatment of vouchers?

One main consequence of the new rules will be that many more vouchers will now be regarded as single-purpose vouchers – where the place of supply of the ultimate goods or services is known at the time the voucher is issued, and where the voucher can only be used for goods or services at a single rate of VAT. In these cases, VAT will be due on the voucher when it is issued (and will have to be accounted for by the issuer) rather than when it is redeemed for those goods and services. As a result, the issuer will no longer benefit from any non-redemption of vouchers; VAT will still be due even if it is never used. Any subsequent sale of a single-purpose voucher will be treated as a supply of the underlying goods or service and VAT accounted for as appropriate.

By contrast, a voucher that can be used for different goods or services is a multi-purpose rather than single-purpose voucher (even if the underlying supplies are liable to VAT at the same rate). In this case, VAT will only be payable by the issuer when the goods or services are actually provided, and any prior transfer of multi-purpose vouchers is not subject to VAT.

Those businesses that issue vouchers covering different goods or services which are liable to VAT at the same rate are likely to be affected by this new definition; they will need to review which goods or services can be purchased with the voucher and if the voucher can be used in a number of countries.

Will there be other changes relating to the VAT treatment of vouchers?

The legislation will also introduce other changes. For example, from 1 January 2019, VAT will be due on the price paid by the last person who purchased the voucher (or where that price is not known, on the face value of the voucher), rather than on the price the voucher was sold for (as is currently the case). So while a business issuing a multi-purpose voucher will account for VAT at the same time as they do now, from next year the VAT may be due on a higher price.

The VAT treatment of vouchers can be a complex area, and with the change due to take effect in less than three months, businesses that may be affected should consider seeking professional advice as early as possible.

This post was produced by Charles Olley, Tax Partner at Price Bailey. To contact Charles about any of the points raised in the article above, feel free to get in touch using the form further below.