UK: On The Face Of It – What Is Changing For VAT On Vouchers?

HMRC Brief

On 10 May 2012, just a week after the Lebara decision which suggested that the current UK rules on vouchers are not in line with European law, HMRC released its Brief 12/2012 announcing immediate changes to the treatment of certain face value vouchers.

The changes affect single purpose vouchers, i.e. vouchers that entitle the holder to only one type of goods or services which are all subject to a single rate of VAT. An example of a single purpose voucher would be one giving entitlement to telephone calls. An example of a voucher not affected by the new rules would be a voucher that could be redeemed for either zero-rated printed books or standard-rated electronic books. The sale of a single purpose voucher will now be regarded as a supply of the underlying goods or services and VAT will be due at the time of sale (rather than at the time of redemption, as at present).

The changes apply with immediate effect, although the Finance Bill containing the changes requires Royal Assent. Affected businesses can therefore choose to implement the changes with effect from 10 May or continue with the current VAT treatment until Royal Assent has been given and make a retrospective adjustment at that point in time.

EU VAT proposals

On the same day the EU Commission released amended proposals for including voucher rules in the VAT Directive which are intended to be implemented by 1 January 2015. The proposals address issues such as the definition of a voucher, the time of supply, the distinction between vouchers and mere payment systems, the VAT treatment of multiple purpose and discount vouchers, and the VAT treatment within distribution chains. The intention is to achieve a consistent VAT treatment of all kinds of voucher across all EU member states.

What now?

For the time being, only businesses involved in transactions regarding single purpose face value vouchers are affected. Businesses involved in transactions concerning other types of voucher, particularly in cross-border situations, should examine their supply chains and the respective agreements, and might want to review the current VAT treatment in the light of the EU proposals.

Achieving a harmonised approach across the EU would be very good news, but even if the new rules could be implemented as envisaged, there may still be some practical question marks, e.g. how to keep track with technological developments especially regarding payment facilities.

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