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This publication is available at https://www.gov.uk/government/publications/changes-to-the-vat-treatment-of-vouchers/vat-treatment-of-vouchers-from-1-january-2019
Who is likely to be affected
Businesses such as retailers and distributors that are engaged in the buying, selling or redemption of vouchers.
General description of the measure
The government will implement an EU Directive on the VAT treatment of vouchers in time for the required date of 1 January 2019. This will simplify the rules for the tax treatment of vouchers, especially where they can be used either in the UK or more widely in the EU. This will prevent either non-taxation or double taxation of goods or services which relate to vouchers.
On 23 June 2016, the EU referendum took place and the people of the United Kingdom voted to leave the European Union. Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the Government will continue to negotiate, implement and apply EU legislation. The outcome of these negotiations will determine what arrangements apply in relation to EU legislation in future once the UK has left the EU.
This measure introduces legislation providing for the VAT treatment of vouchers issued on or after 1 January 2019. It affects only vouchers for which a payment has been made and which will be used to buy something. The measure does not apply to vouchers issued before 1 January 2019, for which existing rules will continue to apply.
Vouchers, in this context, are gift cards and gift tokens, with examples including simple book tokens, gift vouchers, and electronic vouchers purchased from specialist businesses. The changes do not apply to discount vouchers or money-off tokens.
Under current UK VAT legislation, the customer is deemed to be receiving 2 supplies: (1) a voucher; and (2) an underlying supply of goods or services. The measure makes it clear that for VAT purposes there will no longer be a separate supply of a voucher. Instead the rules will be simplified so that there is only the supply of the underlying goods or services, which will be provided in exchange for the voucher at a later date.
There are already rules in UK VAT legislation governing the taxation of vouchers, and these will continue for vouchers issued before 1 January 2019. The new rules will introduce some new concepts and changes in the chain of buying and selling certain types of voucher but, from the consumer’s perspective, there should not be any noticeable change. A £50 voucher will still buy £50 worth of identifiable goods or services from one or more identifiable supplier. HMRC will assist businesses in applying the new rules.
The government’s objective is to ensure the amounts customers pay when using vouchers is better reflected in the tax base. We also wants to make improvements for business by modernising and harmonising the VAT treatment of vouchers. It aims to do this by providing new, clear rules which separate vouchers with a single purpose (for example a traditional book token) from the more complex gift vouchers. We also sets out how and when VAT should be accounted for in each case. The new legislation is not concerned with the scope of VAT and whether VAT is due, but only the question of when VAT is due.
Background to the measure
The EU Vouchers Directive (Council Directive (EU) 2016/1065) was agreed on 27 June 2016. This Directive amends the Principal VAT Directive (2006/112) and legislates for a common VAT treatment of vouchers across the EU.
The measure bringing the Directive into effect was announced at Autumn Budget 2017. A ‘VAT and Vouchers’ consultation ran from 1 December 2017 to 23 February 2018 to seek views on the measure. Both before and during this time, HMRC engaged with representative groups of affected businesses.
Draft legislation was published for consultation on 6 July 2018.
The measure will have effect for vouchers issued on or after 1 January 2019.
Current law is included in Schedule 10A of the VAT Act 1994. This will remain in force for vouchers issued prior to 1 January 2019.
Legislation will be introduced in Finance Bill 2018-19 to transpose Council Directive (EU) 2016/1065 into the VAT Act 1994. Section 51B and Schedule 10A of the Act will be amended. Sections 51C, 51D and Schedule 10B of the Act will be inserted. There is a consequential amendment to VAT Regulations 1995/2518, Regulation 38ZA(2), which relates to manufacturer refunds.
Existing legislation refers to face value vouchers and deems the supply of such a voucher to be a supply of services. The new rules will refer to a voucher issued for consideration in physical or electronic form in relation to which a number of conditions must be met.
- one or more persons are under an obligation to accept it as consideration or part-consideration for the supply of goods or services
- the identities of those goods or services and of their potential suppliers are limited and expressly indicated
- is transferable by gift
The rules will exclude discount vouchers, transport tickets, admission tickets and postage stamps.
Existing legislation identifies vouchers for goods or services where only one VAT rate applies (single purpose) and vouchers where several VAT rates could apply because the voucher can be used to buy different products. The latter are then subdivided into (i) credit vouchers, where the issuer is not generally the redeemer and (ii) retailer vouchers where the retailer does both issue and redeem. With single purpose vouchers, any VAT due is paid when the voucher is issued or subsequently transferred (but not when it is redeemed). With credit vouchers, any VAT due is paid when the voucher is redeemed, whereas with retailer vouchers, any VAT due is paid when the voucher is transferred after issue and when it is redeemed.
The new rules will simply refer to single purpose vouchers and multi-purpose vouchers. A single purpose voucher 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 former business to the latter.
A multi-purpose voucher will be one which is not a single purpose voucher (for example a multi-purpose voucher will be akin to credit and retailer vouchers currently provided for under Schedule 10A). Any VAT due is only payable when the voucher is redeemed for goods or services. The consideration for that supply will be amount last paid for the voucher or, in the absence of this information, its face value.
There will be a new section in the VAT Act 1994 to deal with postage stamps to maintain the current treatment.
Summary of impacts
Exchequer impact (£m)
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The Office for Budget Responsibility has included the impact of this measure in its forecast at Budget 2018.
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure will have no impact on individuals or households as it only affects businesses. There is no impact on family formation, stability or breakdown.
This measure is not expected to have any significant economic impacts.
Impact on business including civil society organisations
This measure will impact mainly large retailers who redeem vouchers, businesses who supply vouchers and businesses that use vouchers as part of their business promotion schemes. There is no impact on civil society organisations.
Businesses may see an increase in business admin burdens initially, but overall the admin burden is expected to be negligible.
One-off costs include familiarisation with the new rules and may also include:
- setting up new systems and processes in order to identify and separate vouchers issued before and after 1 January 2019
- changing accounting systems or processes to ensure correct VAT accounting from 1 January 2019
On-going costs are expected to include separating vouchers between single purpose vouchers and multi-purpose vouchers to ensure correct VAT accounting and issuing VAT invoices.
Single purpose vouchers
Businesses who issue single purpose vouchers which were previously treated as credit or retailer vouchers, may have a cash flow impact as the tax will be due on these vouchers at the point of issue and not redemption.
Businesses primarily engaged in buying and selling multi-purpose vouchers will no longer be able to deduct input tax on the costs of operating that activity. Some intermediaries may choose to alter their business model to avoid incurring this VAT burden.
Businesses that are unable to establish if a multi-purpose voucher was last sold for less than the face value so have to account for the VAT on that face value rather than the sale price.
This will result in a small revenue gain to the Exchequer.
Operational impact (£m) (HMRC or other)
HMRC will not incur any costs implementing this change.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with representatives of affected businesses.
If you have any questions about this change, contact Peter Bennet on Telephone: 03000 585 559 or email: email@example.com.