How can businesses correctly account for VAT on vouchers?
How can businesses correctly account for VAT on vouchers?
Over the past few years it seems that the sale of vouchers has increased. They are now found being offered by all manner of businesses, from the traditional purveyors of them in retail across to restaurants and sometimes cinemas and theme parks. However, while this proliferation might be good for those people who struggle to buy their loved ones presents, it does present some complicated VAT rules to contend with.
Despite the UK and EU rules (which mirror each other) having been in place for some time we continue to find businesses struggling to correctly account for VAT on vouchers, particularly where they are sold to many territories or consist of the right to redeem different items. Therefore we have shared below pointers on how to manage the supply and redemption of them, plus tips on best practice to take.
The VAT rules
The first step to take is determining whether the item is a voucher or not, per the VAT rules. It will be a voucher if it’s a product that gives the bearer rights to redeem the value of it for specified products. This means that pre-loaded telephone cards, debit cards and money off vouchers are not in scope. The legislation also specifically bans tickets from being within its scope.
Having determined that it’s a voucher, the next step is to decide if it’s a Single Purpose Voucher (SPV). This will be the case if the VAT treatment (i.e. the place of supply and rate to apply) is known at the time it is issued. If these facts cannot be determined, it will be a Multipurpose Voucher (MPV).
For an SPV, VAT is due on the issue and each supply of the voucher. This is because the VAT treatment of the underlying supply (i.e. what the voucher can be redeemed for) is known. For an MPV though, VAT is only due upon redemption (or part) of the voucher. This is because only at redemption is the VAT treatment known.
Is it a ticket or a voucher?
The UK’s First Tier Tribunal (FTT) recently heard the case of Go City Limited [TC09263]. This taxpayer sold a sightseeing pass that enabled access to numerous attractions in London, at a lower price than face value. HMRC argued that the passes were tickets, but the FTT rejected this, on the basis that at the time of purchase there was no agreed access to specific, predetermined services. Rather the passes gave the owner options and flexibility on what attractions to visit.
Having determined that the pass was a voucher, it was then a given that it was a MPV because the attractions that could be accessed had varying VAT treatments – it could be used for access to VAT exempt museums as well as zero and standard rated attractions. This meant that VAT was only due at the time the pass was redeemed and not at the point of sale.
Impact of SPV vs MPV
The European Court of Justice (ECJ) confirmed earlier this year in Finanzamt [C-68/23] that where an SPV is transferred between several parties before eventually being redeemed, VAT is due on each transaction. While this offered support to the rules as laid out above, it did highlight that when VAT is due in a country where none of the relevant parties are VAT registered it can create unwanted administrative obligations.
For example, if the voucher only allows for B2C supplies of downloadable content in, say, Austria then each supply of the SPV will be subject to Austrian VAT. This means that potentially each party which sells and buys the voucher needs to register for VAT in that country. Whether this is a requirement will have to be considered, taking into account domestic reverse charge rules and the status of counter parties to the transaction. These implications need to be looked at so as to avoid unwittingly not accounting for VAT at the right time.
In summary
Any business selling vouchers should take care to ensure it has correctly analysed its VAT position. This will allow it to account for VAT at the right time and crucially, ensure that VAT is only declared when needed. If you issue vouchers which allow for redemption in other countries a review of that position should be a priority if only to confirm that a registration is not needed. And all new vouchers should be subject to the checks set out above.
If you would like to discuss anything further, please contact Rob Janering, or your usual Crowe contact.
