VAT treatment of vouchers
13 July 2018
New VAT draft legislation has been published which will affect all vouchers issued on or after 1 January 2019. The legislation will incorporate into UK law new provisions that harmonise the treatment of vouchers across the EU.
The effect of the new rules is that many more vouchers will become ‘Single Purpose vouchers’, meaning that the issuer will have to account for VAT at an earlier date than at present and will no longer obtain the benefit of non-redemption (‘breakage’) of vouchers. The value on which VAT is to be accounted will also be different and intermediaries selling certain vouchers will no longer make a supply of the voucher.
From 2019, a voucher will be regarded as a Single Purpose voucher 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/services at a single rate of VAT. VAT will be due on such a voucher when it is issued and not when the goods or services are actually provided, so 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.
Under the current VAT rules, 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, so VAT is only due when it is redeemed. This change of definition will, therefore, affect businesses that issue vouchers covering different goods or services that are liable to VAT at the same rate. To determine whether they will be affected by this change, businesses should review which goods or services can be purchased with the voucher and if the voucher can be used in a number of countries.
As at present, a voucher that is not classified as a Single Purpose voucher will be classified as a ‘Multi-Purpose voucher’ for VAT purposes and VAT will only be payable by the issuer when the goods or services are actually provided. However, there are other changes that will affect the sale of such a voucher. The VAT will no longer be due on the price that the voucher was sold for (as was decided in the 1996 European Court judgement in Argos). Instead, VAT will be due on the price paid by the last person who purchased the voucher or, if that price is not known, on the face value of the voucher. Although an issuer of a Multi-Purpose voucher will account for VAT at the same time as they do now, from 2019 the VAT may be due on a higher price.
The new rules will also affect intermediaries selling Multi-Purpose vouchers in their own name, as the sale of such a voucher by an intermediary 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. Intermediaries may therefore need to re-visit their business model and act as an agent for the sale of such vouchers instead of selling them in their own name. If they only act as an agent their turnover would then fall.