Vouchers + VAT: New Rules Apply!

Tax VAT

New VAT rules for gift vouchers

Did you know that, according to a study by the Royal Mail: 

  • One in four of us prefer to receive vouchers rather than products as gifts? 
  • Or that a fifth of gift givers prefer to purchase vouchers as presents instead? 
  • And that, on average, almost three quarters of Britons buy vouchers, cards, or tokens as gifts? 

No wonder the UK’s gift card market is thought to be worth around £6 billion! 

And if you’re in the business of selling vouchers, you should also know that, on the 1st of January 2019, the VAT treatment of gift vouchers was changed. 

Here’s what happened:

Pre-January 2019

Prior to the changes, UK VAT legislation meant that vouchers were either subject to VAT upon issue, or VAT was due when the voucher was redeemed against a supply of goods or services.

The UK legislation used the terms ‘face-value vouchers’, ‘retailer vouchers’ and ‘credit vouchers’.

  • Face-value vouchers could only be used to purchase one type of good or service, and meant only one rate of VAT applied.
  • Retailer and credit vouchers meant that several VAT rates applied because the voucher could be used to buy different products.

Post-January 2019

The rule changes came about due to a deadline enforced by the EU’s Vouchers Directive. In contrast to the UK legislation, the EU Directive uses the terms single purpose voucher (SPV) and multi-purpose voucher (MPV) as a way of simplifying matters. 

  • SPV is a voucher that can be redeemed for goods and services subject to the same VAT rate. VAT is accounted for at the time the voucher is purchased.
  • MPV is a voucher that can be used to pay for goods and services that are subject to different rates of VAT (such as standard, reduced or zero rate). VAT is accounted for at the time the voucher is redeemed. 

A quick example

Under the old rules: If you issued a voucher that could be used to purchase DVDs, CDs, or video games, it would be considered an MPV. This meant that VAT was not payable until the voucher was redeemed. 

Under the new rules: The above voucher is now considered an SPV as all of the items listed are subject to one rate of VAT. 

The change in the definition of a single purpose voucher means that many more vouchers will now be classified as SPV, and as such, VAT will be accounted for at an earlier date than pre-January 2019.

Heads up to our pub & restaurant clients

We know that a lot of you issue discount vouchers or money-off tokens to your customers. The good news for you is that these changes do not apply! 

If, however, you’re selling vouchers for an afternoon tea or a three course meal available at your establishment, these vouchers are considered SPV, and VAT is due at the point of sale. 

Need some help?

It’s clear that gift vouchers aren’t going anywhere. They’re as popular now as they’ve ever been. 

But if you’re selling vouchers as part of your business, or if selling vouchers is your business, you need to be certain that you understand these changes, and that you’re accounting for VAT at the right time. 

Need some help? It’s a click away.