HMRC have confirmed that the new EU rules governing vouchers will be implemented notwithstanding our impending exit from the EU. The new rules come into effect from 1 January 2019. The recently closed consultation relates only to how these rules will be written into UK law.
The new directive defines a voucher as an instrument that businesses are obliged to accept as full or part payment for goods or services. Vouchers include gift cards, book tokens and all vouchers, physical or electronic, which can be redeemed for goods or services.
The concept of single purpose vouchers (SPV) and multi-purpose vouchers (MPV) already exist in UK law. This will not change following the implementation of the new rules; however the definition of an SPV will be widened.
Under the current rules an SPV is a voucher that can be redeemed against goods or services of one type which are subject to a single rate of VAT. All other vouchers are considered MPVs. VAT is accounted for on an SPV when issued, as opposed to when redeemed as is the case with an MPV. An MPV is liable to VAT when redeemed as it is only at the point of redemption that the VAT rate be identified.
Under the new rules an SPV will be a voucher ‘where the place of supply of the goods and services to which the voucher relates, and the VAT due on those goods or services, are known at the time of issue’ which is an extension to the current definition. The removal of ‘one type’ will mean many vouchers potentially considered to be MPVs will now be SPVs. HMRC give the example of a UK retailer issuing a voucher which can only be exchanged for CDs, DVDs, computer games and computer accessories. Under current VAT law, this voucher would not be an SPV because these are not the same type of goods. However, under the new law, this voucher would be an SPV because the place of supply is known and the goods are all standard rated.
MPVs are defined as any other voucher that is not an SPV. This means any voucher which can be redeemed against goods or services with different VAT rates or where the place of supply could be in different countries is an MPV.
Businesses dealing with vouchers should review their vouchers to determine if they will be impacted by the wider definition of an SPV as this may change the way in which VAT is brought to account.
As there is no provision in EU law distinguishing between retailer vouchers (issued and redeemed by the same party) and credit vouchers (issued and redeemed by different parties), this differentiation is likely to be removed from the law to simplify VAT accounting procedures.
The new rules will also see a change for intermediaries and agents. A distributor buying and selling SPVs will been seen to make a supply of the underlying goods or services. As a result VAT will need to be brought to account through the chain if the underlying goods or services are taxable. However where the intermediary agent is acting on behalf of someone else, they are not making a supply of the underlying goods or services and their only supply will be for their intermediary services.
For MPVs it is only the provision of goods and services in return for the voucher that will be within the scope of VAT. As a result the sale of MPVs by intermediaries will not be subject to VAT and they will not be entitled to reclaim VAT on any costs relating to the sale of the vouchers. If the intermediary is actually acting on behalf of someone else, they are not seen to be transferring the voucher and their supply is one of intermediary services which are subject to VAT (and VAT recovery on related costs is permitted – subject to the normal rules).
Part payment or part use
Where the price of the goods or services exceeds the value of the voucher, VAT will be due on the total amount of the voucher plus the additional payment.
When an SPV is partly used, the value remaining on the voucher will be inclusive of VAT. If the voucher is never redeemed then no reversal of the VAT is possible.
When an MPV is partly used, the taxable amount will be the relevant proportion of the payment made by the buyer of the voucher.
As SPVs are taxed at the point of purchase, as opposed to the point of redemption, the supply of goods or services in exchange for the voucher should be excluded from daily gross takings.
MPVs however should be excluded from daily gross takings when issued but included when redeemed.
The change in treatment will be important to consider for any businesses involved in the issue, transfer or redemption of vouchers to ensure they are ready for the new rules in January 2019.
For further information please contact our Director of VAT, Alison Birch.