VAT on Vouchers and Tokens

# VAT on Vouchers and Tokens

If your business sells or accepts vouchers, it's important to understand how VAT applies to them. The rules changed significantly on 1 January 2019, replacing the old system of "credit vouchers" and "retailer vouchers" with a new framework based on "single-purpose vouchers" and "multi-purpose vouchers". The key difference lies in when you account for VAT — at the point of sale, transfer, or redemption.

What counts as a voucher for VAT purposes

Since 1 January 2019, a voucher is defined as an instrument (physical or electronic) that meets three conditions:

• One or more persons must accept it as payment for goods or services
• The goods or services it can be used for, and who must accept it, are limited and stated on the voucher or in its terms and conditions
• It can be transferred by gift (whether or not for payment)

For example, a £30 voucher to spend at a specific garden centre would meet this definition.

What doesn't count as a voucher

The following are specifically excluded from the VAT voucher rules:

• Discount vouchers and promotional coupons
• Tickets (such as cinema or train tickets)
• Postage stamps
• Electronic money, credit cards, prepaid cash cards, and currency cards
• Keys or codes that give access to software (though you can buy these using a voucher)

Many "top-up cards" also fall outside the definition because they function as electronic money rather than representing specific goods or services.

Single-purpose vouchers vs multi-purpose vouchers

The two types of voucher are treated very differently for VAT purposes.

Single-purpose vouchers

A single-purpose voucher is one where the VAT treatment is known at the point of issue. This means you know:

• What goods or services it can be redeemed for
• The VAT rate that applies to those goods or services
• Where the supply takes place for VAT purposes

When VAT is due: You account for VAT when the voucher is issued and each time it's transferred for payment. You do not account for VAT again when it's redeemed.

Special rule for issuer and redeemer: If one person issues a single-purpose voucher and a different person redeems it for goods or services, there's also treated as being a supply of those goods or services from the redeemer back to the issuer.

Multi-purpose vouchers

A multi-purpose voucher is one where the VAT treatment is not known at the point of issue. This could be because:

• It can be redeemed for a range of goods or services with different VAT rates
• You don't know where the supply will take place
• The exact nature of the goods or services isn't determined until redemption

When VAT is due: You account for VAT only when the voucher is redeemed for goods or services. The consideration paid at the issue and transfer stages is disregarded for VAT purposes.

Input tax restriction: Because the consideration is disregarded when buying and selling multi-purpose vouchers, there may be restrictions on the input tax you can recover on these transactions.

Consideration on redemption: When a multi-purpose voucher is redeemed, the consideration for the supply is the amount paid for the most recent transfer of the voucher. If this amount is unknown, the face value of the voucher is used instead.

How the old rules compared

Before 1 January 2019, the system worked differently:

Credit vouchers (old rules): Consideration was disregarded at issue and each transfer. VAT was accounted for when the voucher was redeemed. Most credit vouchers now fall under the multi-purpose voucher rules.

Retailer vouchers (old rules): Consideration was disregarded at issue, but VAT was due on each subsequent transfer and at redemption. Most retailer vouchers now fall under the multi-purpose voucher rules, though some are single-purpose vouchers.

The key change is that vouchers no longer represent "a supply of a voucher" or "a right to purchase goods". Instead, they represent the underlying goods or services themselves.

Using vouchers as part-payment

A customer may use a voucher to pay for part of a purchase and pay the rest in cash. For example, if someone holds a £50 voucher but purchases £70 worth of goods, they would use the voucher and pay £20 in cash.

The VAT treatment remains consistent with the type of voucher being redeemed, and you account for VAT on the full value of the goods supplied according to whether it's a single-purpose or multi-purpose voucher.

Place of supply considerations

Because vouchers now represent the underlying goods or services, businesses issuing or transferring vouchers need to consider where the supply takes place for VAT purposes. This is particularly important if you're dealing with customers in other countries, as the place of supply rules will determine which country's VAT applies.

You should familiarise yourself with the place of supply rules for goods and services if your voucher business involves cross-border transactions.

What "transferred" means

A voucher is transferred when ownership passes from one person to another, whether or not payment is involved. This includes transfers as gifts.

Sources

• Find out about changes to VAT legislation on face value vouchers (VAT information sheet 09/18)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.