The Budget change to VAT on vouchers
Jan Garioch reports on the latest proposals in the budget regarding the VAT treatment of VAT vouchers.
The Government consulted on changing the VAT treatment of vouchers back in December 2017. The backdrop to that consultation was the earlier issue of the EU Vouchers Directive. The European Commission had been concerned that the disparity of treatment of vouchers in different member states was creating cases of double taxation and of no taxation. They felt a barrier to cross-border business existed which was impeding a genuine single market. Therefore, they concluded they had to harmonise the approach to VAT and vouchers, leading to the new Directive.
The UK Government’s stated aim on incorporating changes into UK law is for the amounts which customers pay on using vouchers to be better reflected in the tax base. The new rules only apply for vouchers issued from 1 January 2019 onwards. The current law on vouchers remains in force for vouchers issued before that.
The new rules distinguish between single-purpose vouchers (SPVs) and multi-purpose vouchers (MPVs). An SPV will be one where, at the time of issue, both the liability to VAT and the place of supply of the underlying goods or services are known. Any VAT due on those underlying goods or services is paid at the point of issue of the voucher and at the point of each transfer of it, where these are done for consideration. VAT is not payable when the voucher is redeemed, but if the business redeeming the voucher in exchange for taxable goods or services is different from the business which issued it, there is also a supply of those goods or services from the redeeming business to the issuing business.
MPVs are not taxed when issued because at that time it is not known what VAT liability will be appropriate. Tax is charged when the underlying goods/services are supplied. The value of that supply is the consideration paid for the voucher by the last purchaser. Where that is not known, the VAT is due on the face value of the voucher.
It removes a current source of confusion that the supply of the right which is inherent in the voucher and the supply of the underlying goods and services should not be treated as separate transactions. It should also be noted that transport tickets, admission tickets and postage stamps are not vouchers and are dealt with separately for VAT.
There is often a chain of parties involved before the voucher ends in the hands of the consumer. Typically, the issuer will sell to the first distributor at lower than face value. That distributor may sell on at a higher amount – and so on through a chain of distributors until the consumer is ultimately reached. Where an SPV is passed through a chain of intermediaries acting as agents, they make taxable supplies in respect of their commission and should account for VAT on that. Where the intermediaries act in their own name, they have to charge appropriate VAT. This contrasts with distributors of MPVs as there is no supply of MPVs until redemption. Any distributor who acts in their own name will face a problem regarding VAT recovery when there is no supply of an MPV before the actual supply of the goods or services. HMRC’s Policy Paper which was issued on Budget Day envisages that such distributors may choose to change their mode of operation to retain the ability to reclaim input VAT.