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Changes have been made to the VAT treatment of types of face-value vouchers.
The revamp, which will be included in the current Finance Bill and have retrospective effect to 10 May 2012, comes a result of the European Court of Justice (ECJ) decision in Lebara Limited v CRC (Case C-520/10),
Lebara sold telephone cards to non-UK distributors in other EU member states, which then sold them on to distributors or direct to the end customer. The case before the ECJ concerned how services provided via vouchers should be taxed.
The court found there was a supply of services from Lebara to distributors, but there was no supply by Lebara on redemption to the end customer.
The result was that VATA 1994, Sch 10A for certain types of voucher was incompatible with EU law.
In light of the judgment, the UK government has amended the VAT treatment of such vouchers, to prevent artificial avoidance. The effect of the changes is that single-purpose face-value vouchers will be taxed when they are issued.
A single-purpose face-value voucher is one that carries the right to receive only one type of good or service from a range that are all subject to a single rate of VAT; for instance, a prepaid telephone card that can be redeemed only for telecommunication services.
The revamp of the tax treatment removes single-purpose vouchers from Sch 10A, meaning the special rules for face value vouchers will no longer apply.
Instead, where a single-purpose voucher is sold both initially and by retailers or distributors, it is treated as a supply of the goods or services for which it can be redeemed. This will apply whether the voucher is issued by the person from whom it can be redeemed or by a third party.
The current VAT treatment continues for vouchers that do not come within the definition of single-purpose, such as those that can be used across a range of retailers or in garden centres, and book tokens that can be exchanged for e-publications as well as the traditional variety.
Transitional provisions will apply where a single purpose voucher was issued before 10 May: the consideration has been disregarded, but it is redeemed on or after this date.
The effect is to deem a supply for VAT purposes by the person from whom the goods or services are obtained to the end user, where the supply to the end user is made in the UK.
The value of the deemed supply will be the value of the goods or services obtained by use of the voucher. The provision ensures the redeemer only accounts for the amount of VAT that it would have been required to under Sch 10A.
Businesses issuing and redeeming the affected types of vouchers will not have to account for VAT under the new rules until the Finance Bill receives royal assent, but they will then need to make an adjustment to cover the intervening period.
Alternatively, firms may implement the changes immediately to avoid the need for adjustment.
