It’s like buses. You wait for years and suddenly not one but two changes to VAT laws affecting vouchers pop up. One change has already been made and the other is proposed as part of a Brussels initiative to harmonise EU VAT rules for vouchers. Erika Jupe reports the key aspects.
Who: The Commissioners of HMRC
When: June 2012
Law stated as at: 30 May 2012
If your business issues vouchers which can be redeemed for goods or services, you need to make sure that you consider the impact of a change to the VAT rules which took effect from 10 May 2012.
What is the change?
VAT on single purpose vouchers or "SPVs" will now have to be accounted for when the vouchers are sold rather than when they are redeemed. This will have significant cashflow and compliance costs for businesses which issue SPVs.
What does the change apply to?
The change applies to vouchers which can be used to purchase only one type of goods or services which are liable to VAT at a single rate. This will include pre-paid telephone cards and vouchers for electronic downloads.
The change does not apply to vouchers which can be used to purchase more than one type of goods or services (known as "multiple purpose vouchers" or "MPVs").
When does the change apply?
The change will come into effect from 10 May 2012 but will only be included in legislation in late Summer 2012. This means that, in effect, the rules will be backdated and businesses will need to pay any VAT on SPVs issued after 10 May 2012 in their first VAT return following Royal Assent to the Finance Bill 2012.
- Business will need to consider whether they issue SPVs which fall within the rules.
- Accounting systems will need to be changed so that they charge VAT on the issue rather than redemption of a SPV.
- Particular care will be needed to ensure that vouchers issued after 10 May but redeemed prior to Royal Assent are correctly dealt with.
Why this matters:
The change is being made because of the European Court of Justice's decision in Lebara v the Commissioners of HMRC (C-520/10), which concerned prepaid phone cards.
In May 2012, the EU Council also proposed a new directive for a common system for the treatment of vouchers within the EU. The directive proposes that SPVs would be liable to VAT at the time of issue. The directive also seeks to establish harmonised rules on dealings with vouchers, issuer discounts and cross-border supplies of vouchers. The draft directive suggests that the rules would take effect from 1 January 2015.