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 goods or services which are all subject to a single rate of VAT.
According to HM Revenue & Customs (HMRC) prepaid telephone cards that can only be used for making calls, electronic download vouchers which can only be redeemed for downloads, electronic apps, file streaming or other electronically supplied services, group discount vouchers which are redeemed for a specific service or goods and vouchers for admission to amusement parks which cannot be exchanged for other goods and services in the park will all be caught by the new rules.
There is no change to the treatment of face value vouchers that can be used to buy more than one type of good or service. For example a book token that can be redeemed for zero rated books or standard rated e-books, will not be a single purpose voucher as it can be redeemed for more than one type of supply and they have different rates of VAT.
The change is being made "in order to safeguard significant revenue and to prevent artificial VAT avoidance" says HMRC.
The change was prompted by a decision of the Court of Justice of the European Union released on 3 May concerning Lebara Limited. Lebara operated a telecommunications business by which international telephone calls were made available to customers in other member states through the use of face value vouchers. Lebara sold the vouchers to distributors in other member states who then sold them on to other distributors or direct to the end customers.
HMRC contended that Lebara made two supplies; one when it sold the vouchers to the distributors and another when the phonecards were redeemed. The distributors were companies in another EU country and so there was no UK VAT on that transaction but HMRC claimed VAT on the redemptions, on the basis that these were supplies to private individuals in the EU and hence that the supplies were subject to UK VAT as that is where Lebara is established.
The Court decided that there was a supply of services from Lebara to the distributors, but there was no supply by Lebara on redemption to the end customer.
Businesses issuing and redeeming the affected types of vouchers will not be required to account for VAT under the new rules until the Finance Bill becomes law. This is likely to be in July 2012. They will then need to make an adjustment to cover the intervening period. Alternatively, businesses may opt to implement the changes straight away to avoid the need for an adjustment.
At the same time, and also as a result of the Lebara case, the European Commission is proposing to change the VAT Directive to ensure the uniform tax treatment of all types of vouchers across all EU member states. The proposal includes provisions on defining vouchers for VAT purposes and identifying whether VAT is due at the point of sale or redemption.
"This will have a positive effect on businesses by eliminating situations of double taxation and uncertainty about tax compliance obligations. It will also help to close loopholes which facilitate tax avoidance by certain companies exploiting the mismatches between Member States" says the European Commission.