Changes to the VAT Treatment of Vouchers from 1 January 2019
HMRC issued a Policy Paper on 29 October 2018 (found here) addressing changes that will affect the VAT treatment of vouchers issued on or after 1 January 2019. It affects vouchers for which a payment has been made and which will be used to buy something, and the measure does not apply to vouchers issued before 1 January 2019, for which existing rules will continue to apply.
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.
The purpose of the changes is to make the VAT rules for vouchers consistent across the EU, which should prevent any non-taxation or double taxation occurring due to the existing differences in the VAT treatment between the UK and other EU member states. At present, the UK VAT legislation makes a distinction between credit vouchers, retailer vouchers, certain other types of voucher and single purpose vouchers (“SPVs”). From 1 January 2019, the legislation will only refer to SPVs and multi-purpose vouchers (“MPVs”).
What is a Single Purpose Voucher (SPV)?
With effect from 1 January 2019, a voucher will be a SPV if the following two points are known at the time the voucher is issued:
- the place of supply of the goods or services to which the voucher relates; and
- the voucher can only be used to purchase goods or services at a single rate of VAT.
Even if a single voucher can be used for different goods or services, provided the supplies are subject to the same single VAT rate, it can be categorised as a SPV.
The tax point will be deemed to occur on the date of the supply (sale) of the SPV. As a result, some businesses may have to account for VAT at an earlier date than under the current rules. It is important to note, the VAT will still be due if the voucher remains unredeemed.
What is a Multi-Purpose Voucher (MPV)?
Vouchers that do not satisfy the criteria for SPVs as outlined above, are classified as MPVs.
The chargeable event or tax point for supplies of these will be deemed to take place at the point of redemption, that is, at the time of supply of the goods or services that the voucher is used to obtain.
Businesses involved with the issuing, use or redemption of vouchers should review these new rules to understand how they will be affected by them. Businesses may find that the timing for VAT accounting may change (with a negative cash flow impact), or involvement in the use of MPVs may carry the risk of restricted input VAT recovery. Affected businesses may also have to account for more VAT as it will be due on vouchers that are issued but unredeemed.
If you would like to discuss the impact these changes have on you or your business, please get in touch with a member of the Centurion VAT team on 01633 415390 or email@example.com.
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