Changes to the VAT treatment of vouchers on 1 January 2019 will impact many retailers and re-sellers. Therefore, it is recommended that retailers are aware of ways they may be affected and ensure they are paying the right amount of VAT.
The proposed changes will be issued after 1 January 2019 as the UK implements changes brought about by the EU Commission. They make it clear that for VAT purposes there is no longer a separate supply of a voucher; there is only a supply of the underlying goods or services which may be provided/given to the end customer immediately or at a later date.
Vouchers in this context include anything with a face value and an entitlement to be used as a payment type, such as gift vouchers/gift cards, top-up cards. Admission tickets, stamps and telephone SIM cards are not caught.
There are three obvious areas where the changes may impact businesses.
• “Single Purpose” and “Multi-Purpose” vouchers are treated differently for VAT purposes. The current definition of a Single Purpose Voucher (SPV) is 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. These will be broader under the changes. The underlying goods/services to which the SPV relates are “supplied” and subject to VAT when the voucher is purchased which means VAT may need to be brought to account earlier than before in some cases.
• The changes define a Multi-Purpose Voucher (MPV) where a payment has been made to the issuer but the exact nature of what is to be provided and the VAT rate(s) thereof are not known at the time the voucher is purchased/issued. It is only when the voucher is redeemed by the issuer that the VAT situation becomes clear. At that point, the redeemer of the MPV is required to account for VAT on what has been paid for the voucher as consideration by the customer redeeming it, or if this is not known the face value of the voucher.
• The complex rules regarding the purchase and sale of MPVs by intermediaries who do not themselves redeem them will be simplified and the purchase/sale will be “de-supplied”. This may mean the intermediary cannot recover input VAT on costs in some cases and moving to an “agency” model may be advantageous for VAT purposes.
What should affected businesses be doing?
Retailers and sellers/issuers of vouchers should review their existing offerings to establish if the proposed changes potentially affect them. Changes may need to be made to both the amount of VAT charged and the time at which this is brought to account. For some businesses, for example intermediary businesses selling MPVs, an agency model may be preferable but advice should be sought in all cases.
System and invoice processes may need to change and large retailers may need to amend existing arrangements with HMRC such as Bespoke Retail Schemes. The recent decision in Associated Newspapers around vouchers may have created a broader opportunity for some businesses to recover previously blocked input VAT on voucher purchases and this should also be explored.
HMRC is seeking submissions from affected businesses by 23 February 2018 and has issued a Consultation Document which can be found here. HMRC will be arranging further dialogue with businesses through the principal UK representative body, The UK Gift Card and Vouchers Association and says it expects to publish a summary of consultation responses during spring 2018. Draft legislation will be published in Summer 2018 and introduced in the Finance Bill 2018/19.
In the meantime, if you would like to chat through the proposed changes and possible solutions, then please speak to your Wilkins Kennedy contact who can put you in touch with one of our VAT team.