HM Revenue and Customs Brief 12/12
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Issued on 10 May 2012
VAT: Changes to the treatment of supplies made in connection
with single purpose face value vouchers following the CJEU Judgment in
This Brief sets out changes to the VAT rules for certain types
of face value vouchers as announced today by David Gauke, the Exchequer
Secretary, in a Written Ministerial Statement. These changes will be
included within the current Finance Bill and will have retrospective
effect to 10 May 2012.
HM Revenue & Customs (HMRC) operates a system of Road
Fuel Scale Charges (RFSCs) to help businesses account for VAT when
business road fuel is put to private use. This is a simplification
measure that allows businesses to use a standardised scale charge to
value private use fuel. Otherwise businesses would need to keep other
records such as detailed records of private mileage.
Who needs to read this?
Businesses involved in the sale of single purpose face value
vouchers (see paragraph 1.4 below) or which provide goods or services
in exchange for such vouchers. Other types of voucher are unaffected by
Lebara Limited 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. The case
before the CJEU concerned the proper analysis of the supplies involved
and how such services provided via vouchers should be taxed.
The Court found that, in circumstances such as these, there
was a supply of services from Lebara to the distributors, but there was
no supply by Lebara on redemption to the end customer. As a
consequence, the UK legislation in Schedule 10A, VAT Act 1994 for
certain types of voucher is incompatible with EU law.
Although this case was concerned with the supply of
telecommunications services via the use of a voucher, the principles
considered by the Court are of general application and will apply to
other single purpose vouchers that can be used to obtain only one type
of good or service. However, it is HMRC’s understanding that the
majority of vouchers are unaffected.
1.2 Consequences of the judgment in outline
As a consequence of the judgment, it has been necessary to
amend the VAT treatment of certain types of face value vouchers. This
has been in order to safeguard significant revenue and to prevent
artificial VAT avoidance. Given the scale of this risk it has been
necessary to implement these changes with immediate effect. However,
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 receives Royal Assent. 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
1.3 Existing treatment for face value vouchers
The current rules for the treatment of face value vouchers
are given in Schedule 10A to the VAT Act 1994. A face value voucher is
any voucher, token or stamp that carries the right to receive goods or
services to a value shown on it or contained within it. A face value
voucher may be physical or electronic.
Under the existing rules there are two main types of face
value vouchers: retailer vouchers and credit vouchers.
- A retailer voucher is a voucher issued by the same person
who will redeem it. This includes, for example, gift tokens sold by a
retailer for use in its own shops
- A credit voucher is any type of face value voucher that is
issued by one person but which can be exchanged for goods and services
from another person. This includes, for example, gift tokens sold by
one company that can be exchanged for goods or services in a variety of
high street shops.
All the consideration for all supplies of credit vouchers is
currently disregarded with VAT being brought to account by the redeemer
when the vouchers are exchanged for goods or services. With retailer
vouchers the initial consideration on issue is disregarded but the
vouchers are then taxed for subsequent supplies. Again the issuer is
required to account for VAT on the supply when the voucher is redeemed.
1.4 Affected vouchers
As a result of the changes announced today, single purpose
face value vouchers will be taxed when they are issued. This will
affect all single purpose vouchers, whether credit, retailer or other
types of voucher.
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.
For example, where a prepaid telephone card can only be
redeemed for telecommunication services it will be a single purpose
voucher. Similarly a voucher that can be redeemed only for
electronically supplied services will be a single purpose voucher even
if the electronic service can have slightly different forms (e.g.
streamed movies, music or games).
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
Further examples are given below.
1.5 The new treatment of single purpose vouchers
As the announced changes remove single purpose vouchers from
Schedule 10A, the special rules for face value vouchers will no longer
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.
For example a telecommunications company produces vouchers
that entitle the holder to £10 worth of telephone calls. It sells a
voucher to a distributor for £8 and accounts for VAT on the £8. The
distributor recovers the input tax and sells the voucher to a retailer
for £9 and accounts for VAT on £9. The retailer recovers the input tax
and sells the voucher to the final consumer for £10 and accounts for
output tax on £10.
Example 1 Single Purpose Voucher
A UK provider of an online fantasy game sells face value
vouchers that can be redeemed for game time or enhancements within the
game (both standard rated electronic supplied services). The vouchers
are sold to distributors in the UK, other Member States and non-EU
countries who sell them on to consumers within their territory.
As the services for which the vouchers can be redeemed are of
a single type and at the same rate of tax, they are single purpose
vouchers. The supply by the game provider to the distributors is
regarded as a supply of electronically supplied services and will be
subject to UK VAT when supplied to UK distributors and outside of the
scope when supplied to non-UK distributors.
Example 2 Single Purpose Voucher
A group discount provider sells face value vouchers to
consumers which carry the right to specific services (for example, a
manicure at a particular retailer). Even if contractually the provider
is not the supplier of the services to the consumer, for VAT purposes
there is a supply by the retailer to the provider and the provider to
the consumer. VAT will be due from the provider when the voucher is
issued, even if the voucher is never subsequently redeemed.
Other Examples of single purpose vouchers
- Prepaid telephone cards that can only be used for making
- Electronic download vouchers, where they can only be
redeemed for downloads, electronic apps, file streaming or other
electronically supplied services
- Group discount vouchers, where they are redeemed for a
specific service or goods
- Vouchers for admission to amusement parks which cannot be
exchanged for other goods and services in the park
1.6 Other types of vouchers
For all vouchers that do not come within the definition of
single purpose vouchers the current VAT treatment described in 1.3
Example 3 Other type of voucher
A cinema operator sells face value vouchers which can be
redeemed for any services or goods provided in its venues, for example
watching the film, buying popcorn or merchandise. As these are supplies
of more than one type, such vouchers will not be affected by this
change and the normal Schedule 10A rules will continue to apply.
Example 4 Other type of voucher
A restaurant offers face value vouchers that can be redeemed
against the services provided by the restaurant which include both
zero-rated cold take away food and standard rated meals inside the
premises. As the vouchers can be redeemed for services which are at
different rates of tax, they will not be affected by this change and
the normal Schedule 10A rules will continue to apply.
Other Examples of vouchers that are not single purpose vouchers
- Shop vouchers for stores selling goods at different rates
- Book tokens which can also be exchanged for e-books
- Garden centre vouchers
- Multi-retailer vouchers
- Game console vouchers that can be redeemed for goods as
well as downloading electronic products
- Hotel vouchers that can be used in more than one country
or that can be used for other items added to the bill (e.g. newspapers)
1.7 Transitional provisions
The changes announced by the Exchequer Secretary include
transitional provisions. These apply where a single purpose voucher has
been issued before 10 May 2012 (i.e. the consideration has been
disregarded) but it is redeemed on or after this date.
The effect of the transitional provisions 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. This provision ensures that
the redeemer only accounts for the amount of VAT that it would have
been required to under Schedule 10A.
So for example a telecommunications company produces a voucher
with a face value of £10 that entitles the holder to 80 minutes of
calls. It sold a voucher to a distributor for £8 on 1 April 2012 and,
in accordance with the previous rules did not account for VAT. On 15
May the end customer who purchased the card uses it to make a 40 minute
call – the company must account for VAT on £4. The next day the
customer makes a 20 minute call – the company must account for VAT on
£2. The customer makes no further calls after that so the company has
no further VAT to account for.
1.8 Further Advice
Given the definition of single purpose vouchers used by the
CJEU, HMRC do not believe that the judgment will affect a large number
of businesses. However we recognise the impact that the new rules will
have on those that are affected and that it will take them time to
adjust their business arrangements and accounting systems to cope.
Businesses with an HMRC Customer Relationship Manager (CRM) should
discuss with them any difficulties that they will have in complying
with the new rules with a view to agreeing a workable solution.
Businesses that do not have a CRM are welcome to contact our
specialist retail unit on 0113 272 9642 in order to discuss any
problems that the changes might cause them, or in writing to:
HM Revenue and Customs
Retail Unit of Expertise .
1 Munroe Court
White Rose Office Park
About the Author
© Crown Copyright 2012.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2012-05-11 14:09:51 in Tax Articles