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HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: miscellaneous (N to Z): voucher schemes

Local authorities operate a number of different voucher schemes as part of their statutory obligations. They may be issued for the supply of items like clothing, school uniforms and decorating materials. The recipient exchanges the voucher for specific goods or services at nominated suppliers. The supplier then claims payment from the authority up to the value of the vouchers redeemed.

There are no VAT implications for the authority when the vouchers are issued so long as there is no consideration. For their part the supplier of the goods or services accounts for VAT on the value of what is supplied against the voucher subject to the normal VAT rules.

The authority can recover VAT on the goods or services involved under section 33 (see VATGPB4000) where it:

  • is invoiced by the supplier in its own name on a proper VAT invoice
  • has entered the purchase in its normal accounts, and
  • holds the redeemed vouchers submitted by the supplier of the goods or services.

If the holder of the voucher spends more than its redemption value, making up the difference from their own funds, the local authority can only recover VAT up to the value of the voucher. Similarly if the holder spends less than the redemption value the authority can only recover VAT up to the value of the goods or services actually supplied.

It is important that the authority does not recover VAT on zero-rated items purchased with the vouchers. In certain cases supermarkets have agreed zero and standard-rated apportionments with HMRC which can be used as a guide