Find out about changes to VAT legislation on face value vouchers (VAT information sheet 09/18)
This information sheet tells you about changes from 1 January 2019 to the VAT legislation governing face value vouchers in Schedule 10A of the VAT Act 1994.
Overview
This (information sheet) explains the rules that will apply for vouchers issued on or after 1 January 2019. The legislation will be found in Schedule 10B of the VAT Act 1994.
Guidance on the existing rules is in
Key changes
There will no longer be a supply of a voucher, or of the right to purchase goods or services using a voucher. Instead, a voucher represents the goods or services to which it relates, and the question is when the supply of those goods or services takes place - at the time of the issue and each successive transfer of a voucher, or when the voucher is redeemed.
Vouchers will represent supplies of goods or services to which they relate. Businesses issuing or transferring vouchers to customers (whether they are other businesses or customers) in other EU member states will need to familiarise themselves with the rules that determine where supplies of goods and services take place. See VAT Notice 741A and 700 section 4.8.
From 1 January the concepts of credit vouchers and retailer vouchers, which are presently described in paragraphs 3 and 4 of Schedule 10A of the VAT Act 1994, will disappear. Most of these will fall under the new rules for multi-purpose vouchers, although some will fall within the revised rules for single-purpose vouchers.
Presently each transfer (after its issue) of a retailer voucher for consideration is a supply of that voucher. However, from 1 January 2019, while there is a supply of the underlying goods or services when multi-purpose vouchers are issued and transferred, the consideration paid at these stages will be disregarded for VAT purposes. This means that there could be a restriction on the input tax recoverable by businesses buying and selling multi-purpose vouchers.
When a multi-purpose voucher is redeemed for goods or services, the consideration for the supply of those goods or services will be the amount paid for the most recent transfer of the voucher. But where this is unknown it will be the face value of the voucher.
When one person issues a single-purpose voucher (‘the issuer’) and another person redeems it for goods or services (the redeemer, also known as the provider), a supply of those goods or services also takes place by the redeemer to the issuer.
How a voucher will be defined
Presently the legislation refers to a face-value voucher, being a token, stamp or voucher (whether in physical or electronic form) that represents a right to receive goods or services to the value on an amount stated on it or recorded in it. So, for example, a £30 voucher to spend at a garden centre is very likely to meet this definition.
From 1 January 2019 a voucher will be defined as an instrument, whether in physical or electronic form, that meets three conditions:
- one or more persons are under an obligation to accept the instrument as consideration for the provision of goods or services
- those goods or services, and any person who is under an obligation to accept the instrument as consideration for them, are limited and are stated on or recorded in the instrument or the terms and conditions governing its use
- the instrument is transferable by gift (whether or not for consideration)
These conditions have been brought into UK law to make it easier for UK businesses to identify what constitutes a voucher for these VAT purposes. They reflect both the specific wording of the EU law and the background recitals that explain the background to that law.
Certain things will be expressly excluded from the definition of a voucher:
(i) discount vouchers and similar
(ii) an instrument functioning as a ticket
(iii) postage stamps
The following are also not regarded as falling within the definition of a voucher:
- electronic money, credit cards, prepaid cash cards, currency cards or similar mechanisms for making payments
- keys or codes giving access to software (which may be purchased using a voucher)
The fact that an instrument which meets the definition of a voucher has a facility whereby the holder can top up the face value may not, of itself, prevent the instrument from being a voucher. However, it is likely that some top up cards will not meet the definition of a voucher because of the condition of limitation referred to in second bullet, and because many are forms of electronic money or similar.
Meaning of transferred
A voucher is transferred when title or ownership of the voucher passes from one person to another, whether or not for consideration.
What will be supplied for VAT purposes
Presently, the issue of a face-value voucher is a supply of services but it also represents a right to the goods or services to which it relates.
From 1 January 2019, the issue and any subsequent transfer of a voucher will be treated for VAT purposes as a supply of the goods or services to which it relates.
What types of voucher will there be
Presently the legislation makes a distinction between credit vouchers, retailer vouchers and certain other types of voucher and single-purpose vouchers.
From 1 January 2019 the legislation will only refer to single-purpose vouchers and multi-purpose vouchers. We explain this in further detail, but very briefly:
Before 1 January 2019
Credit vouchers
Consideration disregarded at issue and each subsequent transfer of the voucher. Voucher represents consideration for the underlying supply of goods and services when redeemed.
Retailer vouchers
Consideration disregarded at issue of the voucher. Voucher represents consideration for the supply of the underlying goods and services each time it is subsequently transferred, and when it is redeemed for those goods or services.
Single-purpose vouchers
Represent consideration for a supply of the underlying goods or services when the voucher is issued, and at time it is subsequently transferred, but not when the voucher is redeemed.
From January 2019
Multi-purpose vouchers
Consideration disregarded at issue and each single subsequent transfer of the voucher. Voucher represents consideration for the supply of goods and services when redeemed.
Single-purpose vouchers
Represent consideration for a supply of the underlying goods or services when the voucher is issued, and at time it is subsequently transferred, but not when the voucher is redeemed.
If a single-purpose voucher is issued by one person (‘the issuer’) and redeemed by another (‘the redeemer’), there is also a supply of the underlying goods or services by the redeemer to the issuer.
Vouchers used as part-payment
As is presently the case, the holder of a voucher may purchase goods or services paying in part with the voucher and in part using cash. There are no fundamental changes from 1 January 2019; but for the avoidance of doubt, and assuming a voucher has a face-value of £50 but the holder purchases £70 worth of a goods - taxed at the standard rate of VAT - (paying the £20 balance in cash). See consideration for VAT purposes when a multi-purpose voucher is redeemed from 1 January 2019 to see how the value of this is worked out.
Single-purpose vouchers
The issuer accounts for VAT on the £50 consideration charged for the voucher. The redeemer accounts for VAT on the £20 cash paid.
Multi-purpose vouchers
The issuer has no VAT to account for. The redeemer accounts for VAT on the £70 consisting of the £50 face value of the voucher and the £20 cash consideration.
Single-purpose vouchers
Presently a single-purpose voucher is one which represents a right to receive goods or services of one type which are subject to a single rate of VAT. Thus, for example, a voucher to use in a DIY store is unlikely to be a single-purpose voucher because the DIY goods are not of one type (for example paint, wallpaper, tools, timber).
From 1 January 2019, a single-purpose voucher will be defined as one where the place of supply of the underlying goods or services is known (by this, we mean the country in which the supply will take place) and the relevant goods or services have a single liability to VAT (standard rate, zero rate, reduced rate or exempt). The voucher for DIY goods could become a single-purpose voucher because the relevant goods or services will no longer have to be of one type.
As is presently the case, both the issue of a single-purpose voucher, and its subsequent transfer, will represent a supply of the underlying goods or services and any VAT payable is due at this time. The consideration for the supply will be the amount charged for the issue and transfer of the voucher. The persons making these supplies will be entitled to deduct input tax, subject to the normal rules. Nothing here has changed.
A single-purpose voucher may be issued by the person who will redeem it for the provision of goods or services (as is presently the case with a retailer voucher), or the issuer and redeemer may be different people. The following assumes the single-purpose voucher is redeemed for goods taxed at the standard rate of VAT.
If the issuer and redeemer are the same person, there is no supply upon redemption but the redeemer can recover input tax (subject to the normal rules). The VAT is due on the supply of the underlying goods which took place when the voucher was issued.
If the issuer and redeemer are different people, there is no supply upon redemption. The redeemer is deemed to have made a supply to the issuer. The redeemer can recover input tax (subject to the normal rules) because the VAT is due on the supply to the issuer.
Multi-purpose vouchers
Currently, legislation distinguishes between credit vouchers, retailer vouchers and other vouchers. Each has a different VAT treatment.
From 1 January 2019 there will be no such thing as a credit, retailer or other voucher for VAT purposes. Any voucher (other than a discount voucher) which is not a single-purpose voucher will, by default, be a multi-purpose voucher.
Whereas:
- in the case of a single-purpose voucher there is sufficient information (in terms of the place of supply and the tax treatment of the supply) to tax the underlying goods or services when the voucher is issued
- in the case of a multi-purpose voucher it is not possible (at the time the voucher is issued or transferred) to know this information, and thus the underlying goods or services are only taxed when the voucher is redeemed
Example
A voucher is issued with a face value of £50 but it can be redeemed for garden centre products which could either be standard rated or zero rated. The issuer charges £47. No VAT is due at this stage. The voucher is issued to an intermediary who sells it for £49. No VAT is due at this stage. The holder of the voucher then uses it to purchase goods at a garden centre. At this stage it becomes consideration for those goods, and any VAT due is accounted for at this time by the garden centre.
A voucher which can be redeemed for other vouchers is likely to be a multi-purpose vouchers where those other vouchers can be redeemed for a variety of goods or services, taxed at different rates of VAT.
A voucher which can be redeemed in a number of different EU member states is likely to be a multi-purpose voucher because, at the time of issue, the place of supply of the underlying goods or services cannot be determined. But it is important to remember here that the voucher represents the goods or services to which it relates, so the place of supply in question is of those goods or services.
Place of supply
One of the key tests of whether a voucher is a single-purpose voucher or not, is the place of supply. It must be remembered that this is the place of supply of the underlying goods or services, not the place where the voucher is issued or transferred.
VAT Notice 700, section 4.8 explains the place of supply and Notice 741A explains the special rules for place of supply for some services.
The consideration for VAT purposes when a multi-purpose voucher is redeemed from 1 January 2019
The legislation will state that the consideration upon which any VAT is due will be the amount charged for the most recent transfer of the voucher, where this is known to the redeemer, or in the absence of this information the face-value of the voucher. In the garden centre example (above), the redeemer should account for VAT on £49 if this is known, or otherwise on £50.
The position of intermediaries purchasing and re-selling multi-purpose vouchers
From 1 January 2019 the consideration for the issue and any subsequent transfer of a multi-purpose vouchers will be disregarded. This means that intermediaries who merely purchase and re-sell multi-purpose vouchers do not have to charge VAT on these vouchers. Although they are still considered to be making supplies of the underlying goods or services, the legislation will make it clear that these will not be recognised for the purposes of input tax deduction. Consequently, in certain circumstances intermediaries will not be able to deduct input tax.
There are, however, situations where although an intermediary does indeed purchase and re-sell vouchers, this is a part of a much wider package of services supplied to the customer to whom the multi-purpose voucher is transferred. We expand on some of these cases in the appendix to this guidance.
Other situations
Agents
Where an agent is involved in the issue or transfer of vouchers but not as principal, any supply is made by the principal and the agent should account for VAT on the consideration (often commission) received for its agency services. However, where a voucher is issued or transferred by an agent who acts in their own name, then there is a supply of the underlying goods or services both to and by the agent.
Composite supplies
There is presently an anti-avoidance provision which addresses situations where the consideration charged for a supply of goods or services includes a voucher for use at a later time, or in different circumstances. The focus of the legislation is that the voucher and the other goods or services are supplied to the same person in a composite transaction, and the total consideration for the supplies is no different, or not significantly different, from what it would have been if the voucher were not supplies. In these circumstances, the voucher is treated as being made for no consideration.
This provision will continue from 1 January 2019.
Vouchers purchased and given away
When a VAT registered business purchases face value vouchers for the purpose of giving them away it is acting as an intermediary and the treatment will depend on a number of factors.
Single-purpose vouchers - as these are subject to VAT at every stage of a transaction chain any VAT charged will be deductible under the normal rules. The disposal of the voucher should be treated as it would were the goods or services themselves being supplied. That means the supply will be subject to the deemed supply tests (see Notice 700/7).
Multi-purpose vouchers - as the consideration for the issue and transfer of a multi-purpose voucher is disregarded for VAT purposes, there is no VAT for a business to recover. VAT will be due on redemption by the redeemer.
For example, employer purchasing retailer vouchers to be given away as part of a staff reward programme cannot deduct VAT on their purchases as input tax, because VAT has not been charged.
Vouchers as compensation - VATSC70600 sets out the treatment to be applied where a voucher is given for goods returned to a retailer. Otherwise if a voucher is given ‘free of charge’ as compensation or in other circumstances not already referred to, and it is redeemed by the issuer, it is regarded as a discount on the price of the goods or services eventually provided on redemption.
Retail schemes
Single-purpose vouchers
The issue or transfer of a single-purpose voucher by way of retail sale should be accounted for according to the rules of the retail scheme being operated.
The issue or transfer of a single-purpose voucher as a business to business supply should be subject to normal invoice accounting rules.
The redemption of an single-purpose voucher is disregarded but any deemed supply by the redeemer to the issuer will be a business to business supply and should be accounted for under the normal invoice accounting rules.
Multi-purpose vouchers
The issue or transfer of a multi-purpose voucher that is disregarded should be recorded outside the retail scheme.
The redemption value of an multi-purpose voucher should be recorded as income under the rules of the retail scheme being operated.
A business that subsumes a multi-purpose voucher within a wider supply is unlikely to be a retailer. In any event the purchase of a voucher would not have any deductible VAT on it and an onward retail supply would be under normal scheme rules for that supply.
Bespoke Retail Scheme Agreement (BRSA)
BRSAs often contain clauses permitting adjustments for retailer vouchers sold at below face value to be estimated. Any existing clauses may continue to apply in respect of vouchers issued before 1 January 2019 but estimation cannot be applied to vouchers issued on or after that date. Any business seeking to apply a consideration to a multi-purpose voucher that is less than the face value of that voucher should contact us through their normal channels setting out its proposals.
Invoicing
Businesses issuing or transferring single-purpose vouchers should raise tax invoices for the supply under the normal rules of invoicing. A redeemer of an single-purpose voucher may issue a tax invoice to the issuer for the final supply of the goods or services made to the customer redeeming the voucher. A tax invoice may also be issued to the customer for any additional payment they may make over and above the value of the voucher.
The issue and transfer of a multi-purpose voucher is a disregarded supply so any invoice raised for such a supply cannot be a tax invoice. The business redeeming the voucher should issue any required tax invoice under the normal rules of invoicing.
Appendix
Examples of the issue, transfer and redemption of multi-purpose vouchers
While these examples are taken from situations explained to us, they are used in this guidance for illustrative purposes only. The facts of individual situations are likely to be different and should be considered on the basis of all the principles in this information sheet.
Nothing in any of these examples should be taken as overriding the fundamental rules of VAT such as whether there is a supply, what that supply is of and who the supply is to. References to input tax being deductible ‘subject to the normal rules’ means the normal business/non-business and partial exemption tests must be applied.
Unless otherwise stated references to a multi-purpose voucher (MPV) is reference to a multi-purpose voucher with a face value of £20, references to the consideration is that paid for the voucher.
| Model | Example |
|---|---|
| 1 | Retailer issues (and redeems) MPV directly to customer |
| 1a | At face value |
| 1b | At a discount |
| 2 | Intermediary transferring (purchasing and selling) vouchers issued (and redeemed) by a retailer |
| 2a | Intermediary selling at face value |
| 2b | Intermediary selling at discount |
| 3 | Multi-purpose vouchers used as a part of another service |
| 4 | Issuer of MPV is not the redeemer |
| 4a | Service fee charged by issuer |
| 4b | Service fee charged by intermediary who buys and sells MPVs |
| 5 | Multi-purpose vouchers given away |
| 5a | Issuer/redeemer same person |
| 5b | Issuer/redeemer is the same person, the intermediary gives away the MPV |
| 5c | Issuer/redeemer is the same person, the intermediary operates salary sacrifice |
| 5d | Loyalty schemes |
| 6 | Intermediary acting as agent |
| 7 | MPVs issued by a trade organisation on behalf of its members |
| 7a | Managed circulation of MPVs |
| 7b | MPVs issued to members |
Model 1 - Retailer issues (and redeems) MPV directly to customer
Model 1a - At face value
| Step | Transactions | VAT Treatment |
|---|---|---|
| 1 | A retailer issues an MPV for £20 consideration to a customer | Consideration is disregarded, no VAT need be brought to account. |
| 2 | The customer returns to the same retailer and redeems the voucher to purchase £20 worth of goods. | At the time of redemption the retailer accounts for the VAT on the supply according to the liability(ies) of the goods or services supplied or as per the retailer’s agreed retail scheme. The retailer will be entitled to deduct related input tax because it is attributable to the goods or services supplied (provided they are taxable goods or services, and subject to the normal rules). |
Model 1b - At a discount
| Step | Transactions | VAT Treatment |
|---|---|---|
| 1 | The treatment is the same as for Model 1a except the retailer issues the MPV for £18 consideration to the customer. | The consideration is disregarded, no VAT need be brought to account. |
| 2 | The customer returns to the same retailer and redeems the voucher to purchase £20 worth of goods. | At the time of redemption the consideration for the supply will be £20 unless the retailer can demonstrate the actual consideration paid by the customer. The retailer will be entitled to deduct related input tax because it is attributable to the goods or services supplied (provided they are taxable goods or services, and subject to the normal rules). |
Model 2 - Intermediary transferring (purchasing and selling) vouchers issued (and redeemed) by a retailer
Model 2a - Intermediary selling at face value
| Step | Transactions | VAT Treatment |
|---|---|---|
| 1 | A retailer issues an MPV for £15 consideration to an intermediary. | This consideration is disregarded, no VAT need be brought to account. |
| 2 | The intermediary then transfers the MPV for £20 consideration to a customer. The intermediary is a dealer in vouchers and provides no ‘enhancement’ service for example business promotion, marketing, etc. | This consideration is disregarded, no VAT need be brought to account. The intermediary is simply engaged in the transfer of MPVs only. As such the intermediary is not entitled to deduct input tax relating to that activity. |
| 3 | The customer returns to the same retailer and redeems the voucher to purchase £20 worth of goods. | At the time of redemption the retailer accounts for the VAT on the £20 according to the liability(ies) of the goods or services supplied or as per the retailer’s agreed retail scheme. The treatment by the retailer is likely to follow the principles set out under Model 1a. |
Model 2b - Intermediary selling at discount
| Step | Transactions | VAT Treatment |
|---|---|---|
| 1 | A retailer issues an MPV for £15 consideration to an intermediary. | This consideration is disregarded, no VAT need be brought to account. |
| 2 | The intermediary then transfers the MPV for £18 consideration to a customer. The intermediary is a dealer in vouchers and provides no ‘enhancement’ service for example business promotion, marketing. | This consideration is disregarded, no VAT need be brought to account. The intermediary is simply engaged in the transfer of MPVs only. As such the intermediary is not entitled to deduct input tax relating to that activity. |
| 3 | The customer returns to the same retailer and redeems the voucher to purchase £20 worth of goods. | At the time of redemption the consideration for the supply will be £20 unless the retailer can satisfactorily demonstrate the actual consideration paid by the customer was £18. |
Model 3 - Multi-purpose vouchers used as a part of another service
| Step | Transactions | VAT Treatment |
|---|---|---|
| 1 | A retailer issues an MPV to an intermediary for £15 consideration. | This consideration is disregarded, no VAT need be brought to account. |
| 2 | The intermediary provides a genuine ‘enhancement’ service eg business promotion or marketing service. The intermediary transfers the MPV for £20 consideration to a customer. (If this on-sell transfer is for £18 or £22, the principle is the same). Model 4 coves examples with a discrete service charges. |
The intermediary’s business promotion or marketing service will not be disregarded and will be subject to VAT under the normal supply rules. The value of consideration for that enhancement service being the margin made. The onward supply of the voucher continues to be disregarded and the treatment by the retailer will follow the principles set out under Model 1. Because the intermediary is making a taxable supply of a business promotion or marketing service any input tax incurred in making that supply, and on related overhead costs, is deductible, subject to the normal rules. The treatment by the retailer is likely to follow the principles set out under Model 1a. |
Model 4 - Issuer of MPV is not the redeemer
Model 4a - Service fee charged by issuer
| Step | Transaction | VAT Treatment |
|---|---|---|
| 1 | An issuer issues an MPV to a customer for £20 consideration. | This consideration is disregarded, no VAT need be brought to account. |
| 2 | The customer goes to a different retailer and redeems the voucher to purchase £20 worth of goods. | The treatment by the retailer is likely to follow the principles set out under Model 1a. |
| 3 | Issuer recompenses the redeemer £20 and when doing so charges a £1 service fee to the redeemer including VAT. The balance of £19 net is paid by the issuer to the redeemer. | Provided there is a genuine supply of services this transaction represents two things; (a) the reimbursement by the issuer of £20 for the redemption of the MPV by the retailer and; (b) a taxable supply of services from the issuer to the redeemer for £1. The issuer will account for VAT on the £1 service charge which the redeemer may deduct as input tax subject to the normal rules.; The issuer may deduct input tax relating to the taxable service charge subject to the normal rules. |
Model 4b - Service fee charged by intermediary who buys and sells MPVs
| Step | Transaction | VAT Treatment |
|---|---|---|
| 1 | An issuer issues an MPV to an intermediary for £20 consideration. | This consideration is disregarded, no VAT need be brought to account. |
| 2 | The intermediary then transfers the MPV for £20 consideration to a customer. The intermediary buys and sells at the same price. | This is essentially the same principle as 2b. |
| 3 | The intermediary charges an enhancement fee to either the issuer, or the redeemer, or some other party to the issue and transfer of the voucher. | Provided that there is a genuine supply of services by the intermediary any input tax incurred on related overhead costs, is deductible, subject to the normal rules. |
Model 5 Multi-purpose vouchers given away
Model 5a - Issuer/redeemer same person
| Step | Transaction | VAT Treatment |
|---|---|---|
| 1 | A retailer issues an MPV for no consideration. For example as a promotion, compensation or within a composite supply. | Although the voucher may be identical to MPVs that are issued for consideration it should be treated as a discount voucher. |
| 2 | The person holding the MPV redeems the voucher to purchase £20 worth of goods. | As the MPV is being treated as a discount voucher it needs to be apportioned across the liability of the goods or services for which it is redeemed. In some cases, there may be a deemed supply of goods or services. The retailer will be entitled to deduct related input tax because it is attributable to the goods or services supplied (subject to the normal rules). |
Model 5b - Issuer/redeemer is the same person, the intermediary gives away the MPV
| Step | Transaction | VAT Treatment |
|---|---|---|
| 1 | A retailer issues an MPV to an intermediary for a consideration. Model 1a or 1b is likely to apply. | This consideration is disregarded, no VAT need be brought to account. |
| 2 | The intermediary gives the voucher to an employee or a customer for no consideration as a gift or as compensation. | There is no input tax to deduct and no output tax to bring to account. Input tax on any cost and overheads are likely to be attributable to the business operations and deductible under the normal rules. |
| 3 | The holder of the MPV redeems the voucher to purchase £20 worth of goods. | At the time of redemption the retailer accounts for the VAT on the £20 according to the liability(ies) of the goods or services supplied or as per the retailer’s agreed retail scheme. The treatment by the retailer is likely to follow the principles set out under Model 1a or 1b depending on the consideration made on issue.. The fact that the voucher was given away does not affect the MPV’s valuation. |
Model 5c - Issuer/redeemer is the same person, the intermediary operates salary sacrifice
| Step | Transaction | VAT Treatment | |
|---|---|---|---|
| 1 | Similar to 5b | This consideration is disregarded, no VAT need be brought to account. | |
| 2 | The intermediary gives the voucher to an employee under a salary sacrifice scheme. The salary sacrificed being £18. | Same as 5b except that the £18 of salary sacrificed is the consideration for the voucher at that stage. | |
| 3 | The holder of the MPV redeems the voucher to purchase £20 worth of goods. | At the time of redemption the consideration for the supply will be £20 unless the retailer can satisfactorily demonstrate the actual consideration was the £18. |
Model 5d - Loyalty schemes
| Step | Transaction | VAT Treatment |
|---|---|---|
| 1 | Retailer gives an MPV in exchange for points earned under a loyalty scheme. | Although the voucher may be identical to MPVs that are issued for consideration it will be treated as a discount voucher to be apportioned across the liability of the goods or services for which it is redeemed. |
Model 6 Intermediary acting as agent
| Step | Transaction | VAT Treatment |
|---|---|---|
| 1 | Intermediary arranges for the issue or transfer of a voucher from one person to another. The intermediary may hold a stock of vouchers but does not and will never purchase them or sell them as principal. Instead providing a service (such as distribution) to either their supplier or their customer (or both). |
The supply is one of agency services to either the voucher seller or the voucher customer (or both). The agent will be entitled to deduct related input tax because it is attributable to the taxable agency services supplied (subject to the normal rules). |
Model 7 MPVs issued by a trade organisations on behalf of its members
Model 7a - Managed circulation of MPVs
| Step | Transaction | VAT Treatment |
|---|---|---|
| 1 | Trade organisation circulates voucher stock to its members as part of its membership support activities (see step 4). | The supply is of the medium (for example card or paper) on or in which the voucher is contained. The organisation will be entitled to deduct related input tax because it is attributable to the membership services supplied (subject to the normal rules). |
| 2 | The members, who are retailers, issue the MPVs to customers for consideration. | This represents the issue of the MPV the consideration for which is disregarded. However, the VAT incurred in doing this is an overhead cost of the retailer issuer because the purpose is to promote sales of its[1] goods or services. |
| 3 | The holder redeems the voucher to purchase £20 worth of goods or services either from the issuer retailer or from another retailer. | The treatment by the retailer is likely to follow the principles set out under Model 1a. |
| 4 | Trade organisation charges a service fee to its members. Among other things the trade organisation circulates the ‘raw’ vouchers and redistributes money between issuing and redeeming retailers. | The service fees are consideration for taxable supplies to the retailer members. VAT incurred on the purchase of goods or services used to make these supplies (including overhead costs) is deductible, subject to the normal rules. |
[1] The fact that any given voucher might be redeemed with a different retailer can be ignored.
Model 7b - MPVs issued to members
| Step | Transaction | VAT Treatment |
|---|---|---|
| 1 | Trade organisation issues MPVs for consideration to members. | This consideration is disregarded, no VAT need be brought to account. However, any VAT incurred by the trade organisation is attributable to its supplies to its members (step 3). |
| 2 | Customers use MPVs to obtain tickets from places of entertainment. | Places of entertainment make supplies to customers (rights of admission to performances) which may be standard rated or exempt from VAT. Output tax brought to account, and input tax deductible, under the normal rules – broadly, deductible if the supplies are taxable and not deductible if they are exempt. |
| 3 | Trade organisation reimburses the places of entertainment for the ticket sales, less commission. | Trade organisation accounts for VAT on its services to the member places of entertainment, and can deduct input tax – subject to the normal rules. The member places of entertainments input tax position is as at step 2. |