Karen Mulcahy, VAT Senior Manager

Following the recent ECJ case of Lebara v HMRC (published on 3 May 2012), HMRC announced changes to the legislation regarding vouchers last week which had immediate effect as of 10 May 2012. These changes affect organisations that issue, sell and/or redeem vouchers. In addition to this, the long awaited EU proposal by the Commission for a harmonised, EU wide, approach to vouchers was also released (please see our separate blog).

The UK changes relate to ‘single purpose vouchers’, so will not affect all businesses using vouchers.  The treatments of other vouchers such as multi-purposes vouchers remains unchanged. However, it will be necessary to determine exactly what type of vouchers are being issued/redeemed. A number of documents relating to the changes have been released and the Tax Information and Impact Note describes a  single purpose voucher as “one that carries the right to receive only one type of goods or services which are all subject to a single rate of VAT. These may include, but are not restricted to, pre-paid telephone cards; electronic downloads vouchers and vouchers for a specific service (such as group purchase vouchers)”. The legislative changes will be included within the current Finance Bill which has yet to receive Royal Ascent and will have retrospective effect from 10 May 2012. Transitional provisions will apply where a single purpose voucher has been issued before 10 May 2012 but it is redeemed on or after this date.

The effect of the changes is that there is no longer a VAT saving on non-redemption of single purpose vouchers as VAT must be accounted for on issue of the voucher (whether redeemed or not) rather than on redemption. The Commission considers the issue and redemption of the voucher to be a single transaction and therefore HMRC sees the initial issue of the voucher as the tax point. However, whilst a right to the supply may be granted at the time the voucher is issued, there is no availability for a claw back of VAT where no underlying supply linked to this right takes place.

We are anticipating much debate regarding these changes and the related issues and if you would like to discuss how this may impact your business or how to classify your vouchers in the most VAT efficient manner, please get in touch on 01962 735350.