With the festive season fast approaching, retailers will be busy selling their Lego kits, Furbies or Nerf guns. But for those of us that don’t know what to buy, gift vouchers are becoming ever more popular and convenient.
The VAT rules surrounding the supply of goods and services can be demanding at the best of times. Add to the mix the VAT rules for the supply of vouchers and things can start to get confusing.
As vouchers grow in popularity, both as a gift idea and a marketing tool, it is vital that businesses understand if, how, and importantly when they should be accounting for VAT on supplies of vouchers made.
Vouchers can take the form of coupons, tokens, gift cards and can be in physical or electronic form. As an overview, the UK VAT treatment will be affected by a number of factors, including the type of voucher issued, where it can be redeemed and by whom, and what goods or services it can be redeemed for.
The most common type of voucher which will be supplied will be a face value voucher. This gives the bearer of the voucher the right to receive goods or services to the value of the voucher, or to use it as part payment for a purchase of goods or services. Face value vouchers will be classed as either credit vouchers or retailer vouchers, and this can affect the VAT treatment that is applicable.
A credit voucher is a face value voucher that cannot be redeemed by the issuer. For example, a gift card sold by a supermarket which can only be redeemed in certain restaurants. Where this kind of voucher is issued, no VAT is due at the time of issue, provided that the sales price does not exceed the value of the voucher.
Where no VAT is charged at the time of issue, it becomes due when the purchaser redeems the voucher. The output tax must be declared by the retailer from whom the goods or services are redeemed.
Retailer vouchers, on the other hand, are those issued by a supplier from whom goods or services may be redeemed. Whilst these vouchers are different in nature, the VAT treatment is the same, again provided that the sale price does not exceed the face value of the voucher. The supplier of goods or services will account for VAT on the full value at the time of redemption.
Businesses should however be aware of a differing VAT treatment where they sell vouchers as an intermediate supplier. Where for example a high street retailer sells vouchers to a business for onward sale, VAT will not normally be due at the time of the original sale, instead being due when the onward sale is made to the customer.
Once the nature of the voucher is ascertained, further consideration must then be given to whether the voucher is single or multi-purpose. Single purpose vouchers may only be redeemed against certain goods or services of the same liability, whereas multi-purpose may be redeemed for standard, reduced, zero rated or exempt goods or services.
Following an ECJ decision in the Lebara case, the VAT rules surrounding the issue of single purpose vouchers was amended, with the effect that any VAT due must be charged at the time of issue rather than redemption. The treatment for multi-purpose vouchers remains unaffected.
Whilst face value vouchers will generally be purchased for a monetary consideration, there may be instances where vouchers are issued for no consideration, particularly as part of a marketing campaign. In this instance, businesses need to consider the existing business gift rules in order to apply the correct VAT treatment and remain compliant.
The boom in e-commerce has also led to an increase in cross-border supplies being made. With this comes another layer of complexity due to differing voucher rules in EU Member States. For this reason, the European Commission is currently seeking to reform the VAT treatment of vouchers EU-wide by amending council directive 2006/112/EC, with harmonisation of the rules being the desired outcome. We await to see if these rules will be implemented by the planned date of 1 January 2015 – which coincidentally is when the 2015 change in VAT rules for B2C e-service providers comes into effect.
To further complicate things, the increasing use of Bitcoin as a method of payment has yet again shown that EU tax authorities cannot agree on the rapidly moving landscape of e-commerce. HMRC has suggested Bitcoin is a ‘taxable voucher’; Norwegian authorities are leaning towards it being an electronic service, and the Germans as an exempt service.
What is clear is that if you are a B2C e-service provider, selling vouchers to a business in another country, and accepting Bitcoin as a form of payment, you may have a few things to think about this Christmas and into the New Year.