Changes to the VAT treatment of Vouchers

Paul Cochrane

Paul Cochrane

Tax Director

22 March 2018

Following a recent consultation, HMRC is set to update the VAT legislation for vouchers to bring it up to date with a revised EU VAT directive.

The new directive comprises the first EU wide definition of a voucher, and how it should be taxed. From a UK perspective, we are likely to see the removal of the distinction between credit and retailer vouchers, the definition of a single purpose voucher (SPV) will be widened, and there will be changes as to how intermediaries and issuers account for VAT in certain cases. The new law is set to come into effect as of 1 January 2019.

What happens now?

Currently VAT must be paid on single purpose vouchers (SPV) when they are issued.  VAT due on any multi-purpose vouchers (MPV) does not have to be paid before the vouchers are redeemed. Under the current system, a voucher is an MPV if it can be redeemed against a range of goods or services, even if they are all subject to the same VAT rate. 

An example

You have a voucher for a distillery tour and free bottle of whisky at a distillery based in the highlands which you don’t manage to redeem before its expiry date. 

The distillery will not have to pay VAT on the £45 cost of the voucher.  This is because a tour and a bottle of whisky are different goods and services, although both are subject to 20% VAT the voucher is an MPV. 

The changes

There is a change coming to the definition of vouchers issued after 1 January 2019.  From this date the voucher will have to be redeemable against goods or services at different VAT rates to be an MPV, otherwise it will be deemed an SPV and VAT will be due on issue, not redemption.

The changes applied

If the same distillery tour and free bottle of whisky voucher is issued after 1 January 2019 it would be a SPV and VAT of £7.50 would be due when the voucher is issued.  However, if the voucher could also be redeemed against merchandise including VAT zero rated books, the voucher would remain an MPV and the distillery can keep the £7.50.

What should my business be aware of?

The key message is that business that currently benefit from voucher planning should consider the range of goods and services on offer. 

If you have any questions relating to the impact the new changes will have on your business please contact Paul Cochrane.