HMRC has – with effect from 10 May 2012 - changed the VAT legislation on vouchers. From that date vouchers that can only be used to purchase specific goods or services liable to a single rate of VAT (Single Purpose Vouchers – “SPVs”) are liable to VAT at the time the voucher is sold. Previously the VAT was due when the voucher was redeemed against goods or services. There is no change to the treatment of vouchers that can be redeemed against a variety of different goods or services, or against goods and services which may be liable to different VAT rates, e.g. a book token redeemable either against hard copy books or ebooks. Such vouchers are referred to as “Multi Purpose Vouchers” on which a supplier only needs to account for VAT when the goods or services are actually supplied.
The change in VAT treatment follows the recent decision of the European Court of Justice in the Lebara case. Although that case involved the VAT treatment of phone cards sold via distributors elsewhere in the EU, the changes introduced by HMRC affect all businesses, including retailers, that issue vouchers.
The introduction of the new rules for SPVs is a significant change as it advances the time at which VAT must be brought to account. This will create an immediate impact on cash flow for the business and, where SPVs are sold on credit terms, will alter the debtor profile of the business. Furthermore, because VAT is now payable up front on the sale of SPVs businesses issuing them will lose the VAT benefit from any non-redemption or “breakage”. For any business operating on tight margins and with significant levels of non-redemptions or breakage this may have a material impact on their profitability.
In addition to the financial impact of the changes, businesses that sell SPVs will need to review and amend their accounting systems. For retailers this includes the calculation of their daily gross takings. Systems will need to be able to cope with accounting for VAT under the new rules for SPVs but under the original rules for other vouchers. Furthermore, as a result of anti-avoidance rules, particular care will be needed to ensure VAT is brought to account on SPVs issued before 10 May but redeemed after that date.
In addition, if SPVs are sold to business customers elsewhere in the EU although they will be outside the scope of UK VAT (under the general place of supply rule) they sales will need to be declared on the EC Sales List.
For further information or advice on this matter, or if you need any assistance in implementing any of the above recommendations, please speak to your usual BDO advisor or contact: Michael Ashdown or Marc Welby