VAT treatment of reward schemes and vouchers
Many businesses use reward schemes and vouchers as marketing tools and to incentivise customers. However the VAT treatment of reward schemes and vouchers can have significant implications. In this article, we'll explore the VAT treatment of reward schemes and vouchers and clarify some of the key principles you need to consider if you offer these in your business.
What do we mean by reward schemes and vouchers?
As mentioned previously, reward schemes and vouchers are basically promotional tools employed by many businesses - they are especially popular in the hospitality sector. Reward schemes can include cashback programs, loyalty points, discounts, and various other incentives offered to encourage repeat business or reward customer loyalty.
Vouchers, on the other hand, are physical or digital tokens that entitle the holder to a discount, free product, or other promotional benefits when redeemed.
Reward schemes
Various types of reward schemes exist. Generally speaking, the VAT treatment is largely the same. Essentially, VAT is only due on the amount ultimately paid. In other words after the discount - where this has been taken up by the customer.
Some examples would be as follows:
What is considered a voucher for VAT purposes?
The definition of what is regarded as a voucher for VAT purposes effectively changed from 1 January 2019. A voucher is now defined as something in either physical or electronic form, that fulfils three conditions:
There are certain items not included within the statutory definition. These include discount vouchers (or similar, tickets, postage stamps, credit cards (or any other mechanism for making payments) and keys (or codes) giving access to software - this might be purchased using a voucher.
Face value vouchers
Vouchers that fall within this category include gift cards and vouchers, such as book tokens, gift vouchers, and electronic vouchers. There are different types of face-value vouchers which are as follows:
Credit vouchers
This is a voucher issued by someone for a fee which is redeemable against someone else’s goods or services. The person issuing the voucher agrees to give complete or partial payment to the supplier of the goods or services. An example of this is a gift voucher that can be used in multiple retailers.
Retailer vouchers
In this case a voucher is issued by someone for a fee which can be redeemed against goods or services offered by that issuer. This voucher may also be redeemable against goods or services offered by others. An example of this type of voucher would be an M&S voucher bought in an M&S store.
Other vouchers
These type of vouchers are not credit vouchers, retailer vouchers, or postage stamps. For example a voucher which is sold by a retailer to an intermediary for onward sale.
The changes from 1 January 2019
From 1 January 2019, the concepts of retail and credit vouchers no longer exist and any voucher (other than a discount voucher) which is not a single-purpose voucher will, by default, be a multi-purpose voucher.
Single purpose vouchers ('SPV's')
For VAT purposes SPVs are considered to be those vouchers where the place of supply and VAT rate applicable to the goods or services is known at the time of issue. This ultimately widens the scope of VAT.
The supply of an SPV is subject to VAT at the date the voucher is issued. For VAT purposes it is treated as a supply of the underlying goods at that time. The rate of VAT applied will be determined by the rate applicable to the goods or services against which it can be used.
When the voucher is redeemed the seller does not account for any VAT on the sale price, to the extent it is covered by the voucher.
Where the SPV is sold to an intermediary, who is acting as a Principal, or agent in their own name, then VAT is charged as above. The intermediary will recover the VAT and subsequently charge VAT when it makes an onward supply.
If the intermediary is acting as disclosed Agent, it will not recover the VAT it is charged. It will not charge VAT on the onward supply and it will pay VAT on any commissions received.
Multi purpose vouchers ('MPV's')
MPV's are essentially face value vouchers that are not SPV's.
Unlike SPV's, VAT is not accounted for on the issue date of the voucher, the VAT is paid by the redeemer on redemption of the voucher. Previously VAT was based on the price the voucher was originally sold for by the issuer, Evidence was needed if this was different from the face value. Where the amount was unknown, or there was insufficient evidence, the face value was used.
From 1 January 2019, the VAT due on MPVs is based on the price the last person who purchased the voucher paid for it, or, where not known, the face value of the voucher.
Vouchers provided to your employees
The most common example are retail vouchers and this case you can recover the VAT element on the cost of those vouchers purchased for staff.
However we would advise against using vouchers as a form of salary sacrifice given the outcome of the Astra Zeneca tax case and HMRC's updated guidance as this could cause unforeseen complications,
Summary
As you can see above, it's important to have a good understanding of the VAT treatment of reward schemes and vouchers if you offer these incentives to customers or staff so you don't fall foul of HMRC!
For more useful information, check out our Ebooks here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
Alternatively, please feel free to complete our Business Questionnaire here.