How Vouchers Affect the Amount of VAT Due

How Vouchers Affect the Amount of VAT Due
Different types of vouchers have different VAT liabilities.  Vouchers fall into two main categories: credit vouchers and retail vouchers. If you are in receipt of any then it is wise to know how this affects the amount of VAT you are due to pay.


A retailer voucher is one issued by a business which will either redeem it for goods or services, or will reimburse another trader who does so. Examples include gift vouchers, book tokens and phone cards.


VAT is accounted for on the value at which the voucher is sold, at the point of redemption not on its face value.  Therefore, if the issuer sells a £10 voucher for £8 he accounts for the VAT on £8 when the voucher is redeemed.


A credit voucher is defined as a face value voucher that is issued by a person who cannot redeem the voucher for goods or services themselves. Instead, they undertake to give complete or partial reimbursement to the person who does redeem the vouchers for goods or services. VAT is accounted for on the full face value of the voucher, at the point the voucher is redeemed.


In both cases, the initial issue price of the voucher is normally outside the scope of VAT.

How Much VAT and When?

In most cases money-off coupons are issued free and no VAT is due on their issue.  They are not treated as face value vouchers.  When a retailer accepts a money-off coupon issued by a manufacture or itself, it only has to account for VAT on the money it actually receives.  If the manufacturer later reimburses the retailer then VAT is due on the amount received at that time.


When a customer redeems a face value voucher, for example a gift voucher, the transaction is treated as though the face value voucher was cash, and VAT is due on the full value of the transaction. If you can show the voucher had been sold at a discounted amount, VAT is due on the discounted value, rather than the face value of the voucher.


Electronic and Top-up Vouchers

Electronic vouchers are treated in the same way as paper ones. This covers, for example, top up cards which do not bear a face value, the sums being recorded electronically. 

 Some businesses have tried to avoid VAT on mobile phone top-up cards by purchasing them VAT free from overseas, however, HMRC has introduced anti-avoidance measures in the form of a reverse charge – the business has to charge itself VAT on the import of the phone cards which it can then claim back providing it makes an onward taxable supply of the phone cards.


Businesses That Buy and Sell Vouchers

Some businesses act as intermediaries in the transaction chain and buy in and then resell vouchers to other businesses.  Unless it is known that the vouchers are to be redeemed against zero-rated or exempt goods or services then the sale is treated as a standard rated supply.


The issuer of the voucher only has to account for VAT when the voucher is redeemed, not when he sells them to an intermediary, however, the intermediary has to account for VAT on his onward sale of the voucher.


Practical Tip

HMRC has introduced a concession whereby the purchaser of the voucher can claim notional input tax equal to the output tax he charges on the sale, even though he was not charged VAT by the issuer of the voucher.


By Andrew Needham