From 1 January 2019, a new VAT regime for vouchers will take effect in all EU member states. The regime will apply to all vouchers issued on or after 1 January 2019. The UK will be implementing this regime despite BREXIT (expected to take place on 29 March 2019). HMRC consulted on the introduction of this new VAT regime at the beginning of 2018 and draft legislation was published in the summer. The new regime will be introduce in Finance Bill 2018-19. Guidance on the interpretation of this legislation was expected to be published with the Autumn 2018 Budget, however it has unfortunately not yet been released.
For the UK, the new EU VAT voucher regime is an overhaul of the existing voucher regime. The new regime forms part of the EU’s plan to tackle tax mismatches. The aim of the regime is to harmonize the VAT treatment of vouchers across the EU. The regime is intended to prevent non-taxation or double taxation of the goods or services relating to a voucher.
The new regime
Under the EU voucher regime, there are two categories of vouchers: single purpose vouchers and multi-purpose vouchers.
Single-purpose vouchers are vouchers where the place of supply of the goods or services to which the voucher relates and the VAT treatment of such supply are known at the time of issue of the voucher. The definition of single-purpose voucher is the replacement of the UK’s “face-value voucher” category is wider than that category. Under the current UK rules a “face-value voucher” can only be used to purchase one type of goods or services, whereas the definition of single-purpose voucher captures any goods or services where the VAT rate for all items is the same. VAT on single-purpose vouchers should be accounted for at the time of issue of the voucher. Transfers of single-purpose vouchers are a VAT-able supply.
A multi-purpose voucher is any voucher that does not meet the criteria to be a single purpose voucher. In practice this means that the new definition of multi-purpose voucher will capture all vouchers that can be redeemed for supplies of goods or services that attract different rates of VAT (i.e. due to uncertainty at the time of issue as to the type of good/service and the place or time of supply). VAT on multi-purpose vouchers should be accounted for at the time of redemption of the voucher. The value of the supply will be the price paid by the consumer or, if that is not known, the face value of the voucher less the amount of VAT relating to the goods or services supplied. Transfers of multi-purposes vouchers are not VAT-able supplies. VAT is therefore not due on the transfer of a multi-purpose voucher through a supply chain. We expect that distributors of multi-purpose vouchers will change their business model from a buy/sell arrangement to an agency arrangement. Distributors will charge commission on their supply of services to the issuer (being a separate supply of services) and deduct input VAT under normal principles. There are potential difficulties for distributors of changing their business model, contracts and commercial terms will need to be renegotiated to ensure the agency arrangement is disclosed to all parties and there is the inevitable administrative cost for all involved as well. In relation to recovery of input VAT by issuers and redeemers of multi-purpose vouchers where the vouchers are distributed by agents, HMRC has confirmed that the bad-debt-relief rules will apply where under agency arrangements, the issuer/redeemer of a voucher does not receive payment from an intermediary,
HMRC is currently working on producing guidance to assist taxpayers in implementing and operating under the new regime. HMRC has acknowledged that the introduction of the new regime immediately after Christmas, being the busiest period for retail sales and issue of vouchers, may cause taxpayers difficulties in implementation. HMRC has stated that it will adopt a “pragmatic approach” whilst businesses adapt their accounting practices which should give businesses some comfort that full compliance will not be expected on 1 January 2019.
There are matters that businesses will not be able to determine by reference to the draft legislation and so will be reliant on guidance from HMRC. The new EU regime will not apply to discount vouchers (e.g. free hotel vouchers), transport and admission tickets, postage stamps or certain electronic products and payment mechanisms. Clear guidance on the distinction between such items and vouchers that are subject to the regime is required from HMRC. We consider that businesses will particularly need guidance from HMRC as to how hybrid instruments (i.e. those that represent a combination of voucher and ticket) should be treated and how online vouchers will be distinguished from online payment systems and credit held in an online account.
It may be difficult in the short-term for businesses to identify which regime applies on redemption of a voucher due to uncertainty of whether a voucher was issued before or after 1 January 2019. HMRC has stated that it will take a “pragmatic approach” in regulating the new regime but again it has not given any indication as to how long this “pragmatic approach” will be adopted so the sentiment does not provide as much comfort to businesses as it might.