A formal consultation on forthcoming changes to the VAT treatment of vouchers was published alongside the draft Finance Bill on 1 December 2017. The new rules are set to come into force on 1 January 2019 and HMRC is requesting feedback on the planned changes by 23 February 2018.
HMRC has been holding regular meetings with interested parties since an EU Directive harmonising the VAT position of vouchers across the member states was first proposed and BDO has been part of these discussions. Now the EU law has been agreed, HMRC says its consultation is mainly about technical issues so, although written replies are welcomed, any further meetings will be organised through the UK Gift Card and Vouchers Association.
The new rules
Once the legislation is in force voucher transactions will no longer give rise to two supplies – one of a voucher and a separate supply of the goods or services. From 2019, there will be just the one supply of the underlying goods or services. This will help to avoid confusion over when a business that purchases a voucher is entitled to recover the associated input tax.
There will also be a new definition of a voucher for VAT purposes - transport tickets, admission tickets and postage stamps are not covered by the revised definition so will retain their current VAT treatment. Money off vouchers and discount vouchers will not be covered by the new rules either.
From 2019, a Single Purpose Voucher will be defined as any voucher where the place of supply and the VAT rate applicable to the goods or services is known at the time that the voucher is sold. This is much wider than the UK’s current definition and will mean that many more vouchers will be treated as Single Purpose Vouchers on which VAT must be accounted for on the date of issue. HMRC is asking if this change to the definition results in any additional concerns to businesses apart from having to account for the VAT at an earlier date.
The VAT due on Multi-Purpose Vouchers will still fall to be declared on the date the goods or services covered by the voucher are provided. However, the VAT will be accounted for on the price paid by the last person who purchased the voucher or, where that is not known, the face value shown on the voucher or contained within it. This change will reverse the judgment of the CJEU in the case of Argos Distributors Ltd which decided that the VAT was only due on the price that the voucher was originally sold for by the issuer of the voucher. HMRC is asking what concerns businesses may have in relation to this change.
Impact on intermediaries
There are also a number of planned changes that will affect intermediaries selling vouchers. The sale of a Multi-Purpose Vouchers will no longer be liable to VAT and an intermediary selling such a voucher as a principal will not be entitled to recover input tax on any associated overheads. If an intermediary acts as an agent in the sale of such vouchers, then a taxable supply of intermediary services will be made by the intermediary to the issuer of the voucher. VAT attributable to the taxable intermediary services would be recoverable in the normal way and HMRC considers that many distributors may wish to change their business model such that they act as an agent going forward. HMRC therefore asks businesses if they do expect to move to an agency model as a result of this change.
The current guidance on the treatment of vouchers under a retail scheme will be updated to exclude the redemption of Single Purpose Vouchers from the Daily Gross Takings of a retailer, as the VAT would have been accounted for when the voucher was issued. Similarly, Multi-Purpose Vouchers will be excluded from the takings when they are sold as the VAT will be accounted for when they are redeemed. HMRC is asking if these rules on the treatment of vouchers under a retail scheme would increase the administrative burdens on retailers.
The new rules will have a major effect on businesses and all clients buying and selling vouchers should review their operations so that they are aware of the impact of these changes for them. BDO will continue to be part of the on-going discussions with HMRC so, if you would like BDO to put your views to HMRC or wish to provide any feedback please contact Michael Ashdown.
Read more on the Draft Finance Bill 2017-18