Are you aware of how the law on VAT and vouchers is changing?
From 1 January 2019, the UK law on VAT and vouchers is changing due to the deadline enforced by the EU’s Vouchers Directive. The change will affect businesses such as retailers and distributors who issue and redeem vouchers, and also those who buy and sell vouchers.
Under current UK VAT legislation, vouchers are either subject to VAT upon issue or when they are redeemed against a supply of goods or services.
The UK VAT rules on vouchers are set out in Schedule 10A of the VAT Act 1994. The UK legislation uses the terms ‘face-value vouchers’, ‘retailer vouchers’ and ‘credit vouchers’.
However, the EU Directive uses the terms single purpose voucher (‘SPV’) and multi-purpose voucher (‘MPV’) and so the UK will need to align its terms.
Single purpose voucher (SPV)
The EU Directive defines an SPV as a voucher that can be redeemed for goods and services that are subject to the same VAT rate.
Under the current UK legislation, a voucher that can be used for different goods or services is not a single purpose voucher, even if the underlying supplies are liable to VAT at the same rate. As a result under the current rule, VAT is only due when the voucher is redeemed.
Following consultation, new rules will ensure that from 1 January 2019 VAT will be due at the point of sale of an SPV. The final sale of goods or services in exchange for the SPV will not create a tax point for VAT purposes.
Because of the change in definition of SPV, many more vouchers will become SPVs meaning that the VAT will be accounted for at an earlier date than at present.
Multi-Purpose Voucher (MPV)
The EU Directive defines an MPV as a voucher that is not an SPV.
This is a voucher that can be used to pay for goods and services that are subject to different rates of VAT (such as standard, reduced or zero rate). As the VAT cannot be determined at the time of sale of the voucher, the sale of an MPV will not be subject to VAT at the time of sale.
The final sale of goods or services to the consumer in exchange for the voucher will be the point at which VAT will be declared by the supplier.
Vouchers will include gift cards and gift tokens, simple book tokens, gift vouchers, and electronic vouchers purchased from specialist businesses. The changes do not apply to discount vouchers or money-off tokens.
To determine whether they will be affected by this change, businesses should review which goods or services can be purchased with vouchers.
The sale of MPVs by an intermediary in their own name will no longer be treated as a supply for VAT purposes. This means that the intermediary will no longer be able to issue a VAT invoice for such a sale and will not be able to recover input tax in relation to the supply of the voucher.