UK Gift Card & Voucher Association VAT and Vouchers Gift Card & Voucher Association – VAT and Vouchers Page 2 Implementation of the 2015 VAT changes affecting the telecommunication,

UK Gift Card & Voucher Association – VAT and Vouchers

Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors Page 2

Important information

► The information in this pack is intended to provide only a

general outline of the subjects covered. It should not be

regarded as comprehensive or sufficient for making decisions,

nor should it be used in place of professional advice.

► Accordingly, Ernst & Young LLP accepts no responsibility for

loss arising from any action taken or not taken by anyone using

this pack.

► The information in this pack will have been supplemented by

matters arising from any oral presentation by us, and should be

considered in the light of this additional information.

► If you require any further information or explanations, or

specific advice, please contact us and we will be happy to

discuss matters further.


Agenda

► Purpose of this session: (1) Identify issues to focus on – UKGCVA

members view (2) Actions to take forward

► Difference between a „voucher‟ and „instrument of payment‟

► Current UK voucher rules

► Current EU voucher rules

► Proposed EU 2015 voucher rules

► Comparison between UK and Proposed EU 2015 voucher rules

► Impact of 2015 proposed EU voucher rules

► Please note the current version of the proposed EU legislation is

in draft. The draft legislation may be subject to change.


What is a voucher?

► A voucher is an instrument which gives the holder the

right to receive goods or services.

► A voucher entitles the holder to receive a discount on

goods or services.

► A voucher may be in electronic or physical form.

► A voucher is aimed at developing markets for goods and

services, to instil loyalty in customers or to facilitate the

payment process.


Instrument of Payment

► An instrument whose purpose is to make payments falls

outside the definition of vouchers for VAT purposes. This

will be considered as pure payment services.

► For example, where a stored or prepaid credit is used to

meet the cost of goods or services, any entitlement only

occurs when payment is made. i.e. mobile payment

services which allow a consumer to use a mobile to pay

for a range of goods.

► In comparison to the redemption of a voucher, which is

not payment for goods or services, but the exercising of a

right subsequent to a payment which occurred when the

voucher was issued.


Current UK voucher rules

► What are „face value vouchers‟? ► Token, stamp or voucher (whether physical or electronic form) that represents a right to

receive goods or services to the value of an amount stated on the voucher. Examples

include gift vouchers, telephone cards, book tokens, and electronic top-up cards.

► Retailer vouchers versus Credit vouchers ► Retailer vouchers

► Issued and redeemed by the same party.

► VAT accounted for by issuer upon redemption.

► Sales by intermediaries are (generally) subject to VAT.

► Credit vouchers

► Issued by one party and redeemed by another.

► The redeemer accounts for VAT upon redemption.

► Sales by intermediaries are not subject to VAT (except to the extent the

consideration exceeds face value.)


Current EU rules on vouchers

► No specific rules on vouchers in the VAT Directive

► Absence of common rules means each EU Member State has its own rules.

► Variety of different VAT rules include:

► The supply of a voucher treated as a supply of goods/services

► Purchase of a voucher is payment on account for future supplies

► Some countries tax vouchers on issue whilst others tax on redemption

► Uncertainty about the correct tax treatment is problematic for cross-border

transactions and for chain transactions in the commercial distribution of

vouchers.

► Potential for non taxation or double taxation of cross-border voucher

transactions.

► Current position increases compliance cost for business and inhibits cross-

border trade.


Proposed EU legislation

► Harmonises the VAT treatment of vouchers for domestic and cross-border transactions when issued,

distributed and redeemed either within one EU country or in respect of operations that extend across the

EU.

► Effective date: 1 January 2015.

► Voucher = “an instrument (electronic or physical) carrying a right to receive a supply of goods or services,

or to receive a price reduction with regard to a supply of goods or services”

► Makes distinction between vouchers and payment instruments.

► The supply (issue) and subsequent redemption of the voucher are treated as a single transaction for VAT

purposes.

► The VAT treatment of the transaction is the same as if no voucher was used.


Proposed EU Legislation: types of vouchers

Single-purpose voucher (“SPV”)

► “a voucher carrying a right to goods or services for which, at the time of issue,

the VAT treatment is known”

► SPV entitles holder to receive identified goods or services in circumstances

when the tax and EU country of supply can be definitively identified from the

outset.

► VAT becomes due when money received (if before redemption)

Multi-purpose voucher (“MPV”) ► “any voucher which does not constitute an SPV”

► i.e., where the VAT treatment of the goods or services is not known, e.g.,

redemption for goods/services with different VAT liabilities or in other

countries.

► VAT is due on redemption/part redemption based on all/some of the face

value.


Types of vouchers for VAT purposes

Type of Voucher UK VAT EU Proposal*

Open loop voucher Voucher is issued by one party but

redeemed by another.

Credit Voucher SPV/MPV

Restricted loop voucher Voucher is issued by one party, but

redeemed by a selected number of

parties.

Credit Voucher SPV/MPV

Closed loop voucher Voucher is issued and redeemed by

the same party.

Retailer Voucher SPV/MPV

*SPV: entitles the holder to receive identified goods/services in circumstances when the tax and Member State of

supply can be definitively identified from the outset.

*MPV: entitles the holder to receive goods or services where the goods/services or the Member state where they are

supplied are not sufficiently identified in order to determine the VAT treatment when the voucher is issued. Includes all

discount vouchers.


Scenario 1: Retailer Voucher (Closed Loop)

Retailer Customer

Voucher sold for £80

Customer redeems voucher at selected retailer


UK VAT Analysis

Current UK rules: Retailer Voucher

► In the above scenario the voucher is issued and

redeemed by the same party.

► The retailer is required to account for any VAT due on the

£80 when the voucher is redeemed.


Proposed EU VAT Analysis

Single Purpose Voucher

► VAT should be accounted for on the £80 by the retailer when the

voucher is paid for (before redemption). This is applicable if the VAT

liability of the goods or services is known when issued.

► Essentially SPVs are taxed as prepayments for future supplies.

Multi Purpose Voucher

► VAT should be accounted for on the £80 by the retailer when the

voucher is redeemed. This is applicable where the VAT treatment of

the goods or services is not known, e.g. redemption for

goods/services with different VAT liabilities or in other countries.


Scenario 2 : Retailer Voucher with Intermediary (Closed Loop)

Issuer Intermediary Customer

Customer redeems voucher with issuer

Issues

£90

Sells

Voucher

£100

Issues Schedule

10A invoice

Face value of voucher £100


UK VAT Analysis

UK VAT analysis

► The issuer will receive £90 from the intermediary for the

£100 Voucher. There will be no VAT on the issue.

► The issuer is required to provide the intermediary with a

Schedule 10A invoice to allow the latter to recover input

tax.

► The sale by the intermediary to the customer will be

subject to VAT at the appropriate rate.

► The issuer will be required to account for VAT on £90 at

the time of redemption.


Proposed EU VAT Analysis: MPV

MPV

► The issuer receives £90 from the intermediary for the £100 Voucher. There

will be no VAT due on this transaction.

► The intermediary will sell the voucher for £100 to the customer. There will be

no VAT on the sale.

► VAT is due on the difference between the face value of £100 and £90 paid by

the intermediary.

► The £10 (VAT inclusive) difference is deemed to be payment for a distribution

service supplied by the intermediary to the issuer.

► There is no requirement to issue a Schedule 10A invoice.

► Intermediary is required to raise an invoice to the issuer for a distribution

service in respect of the £10. Alternatively, issuer could raise a self billed

invoice.

► The end result is the issuer is required to account for VAT on the £100 at

redemption.


MPV: EU VAT Analysis



Issues

£90

Sells

Voucher

£100


Raises invoice for

distribution service

£10 (VAT inclusive)


Proposed EU VAT Analysis: SPV

SPV

► Not clear how this will work in practice.

► The issuer will be required to account for VAT at the appropriate rate

on the issue to the intermediary, but on what value?

► Issue: Customer redeems £100, but issuer receives only £90.

► In order to have fiscal neutrality, there are two potential solutions.

► 1) Issuer accounts for VAT on £100 but receives a £10 service charge

from the intermediary, to offset the input tax.

► 2) Buy/Sell: Issuer raises invoice to intermediary for £90 and the

intermediary sells the voucher for £100.


SPV – Service Charge



Issues

£100

Sells

Voucher

£100


Raises invoice for

distribution service

£10 (VAT inclusive)


SPV – Buy/Sell



Issues

£90

Sells

Voucher

£100



Scenario 3 – Credit Voucher (Restricted/Open Loop)

Issuer Customer Voucher sold for £100

Customer redeems

voucher at a selected

number of retailers

Retailer 1

Retailer 2

Retailer 3


VAT Analysis

Current UK rules: Credit Voucher ► In this scenario the voucher is issued by one party and redeemed by another

party.

► The issuer should not charge VAT on the issue of the voucher.

► The redeemer will account for VAT on the £100 upon redemption.

Proposed EU Rules ► MPV- No VAT on issue. The redeemer will be required to account for VAT on

the £100 when it is redeemed by the customer.

► SPV – VAT is due on the issue of the £100 voucher.

► Both scenarios present new challenges – specifically, how would they work in

practice?


MPV: Proposed EU VAT Analysis


Customer redeems


number of retailers

Retailer 1

Retailer 2

Retailer 3

No VAT

VAT

£10 service charge + VAT


SPV: Proposed EU VAT Analysis


Customer redeems


number of retailers

Retailer 1

Retailer 2

Retailer 3

VAT due on issue of

voucher (but who pays?)


Scenario 4: Commission model

Issuer Supermarket

Voucher

£100

Customer

Intermediary

Voucher sold

for £100

£100 £100


£30 fee for

collection

of payment

£20 fee for

selling

vouchers


VAT Analysis

UK VAT Analysis

► No VAT is accounted for on the issue of the voucher.

► VAT is due on the payment collection service performed by the intermediary

on behalf of the issuer.

► VAT is due on the fee paid by the intermediary to the supermarket for selling

the voucher.

► Issuer accounts for any VAT due upon redemption of the voucher.

EU VAT Analysis

► SPV – The issuer will be required to account for VAT on the sale of the £100

voucher to the intermediary. What about the onward sale?

► MPV – No VAT on purchase and sale of voucher. The issuer will be required

to account for VAT on the £100 voucher upon redemption.

► Bounty/commission payments: Distribution fee is charged by the

intermediary to the issuer and a fee is paid by the intermediary to the retailer

for selling the vouchers. These payments will be subject to VAT.


Scenario 5: Sales To Corporate Clients

Issuer Reward/Incentive

Provider

Issues

Voucher

£90 EY

Employee redeems voucher with issuer


Issues Schedule

10A invoice

Sells

Voucher

£95 + VAT

+ VAT

Employees


VAT Analysis

Current UK rules: Retailer Voucher

► In this scenario the voucher is issued and redeemed by the same party.

► No VAT is due by the retailer at the time of issue.

► Issuer should present the reward/incentive provider with Sch 10A invoice.

► Sale to EY is subject to VAT.

► VAT is due on the £90 by the issuer upon redemption.

Proposed EU Rules

► The VAT treatment is no longer dependent on whether or not the voucher is

issued and redeemed by the same party.

► The key issue is whether the voucher is a SPV or a MPV.

► SPV is likely to create cash flow implications but an absolute cost if no

redemption.

Thank you


Ernst & Young LLP

Assurance Tax Transactions Advisory

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© Ernst & Young LLP 2012. Published in the UK.

All Rights Reserved.

Information in this publication is intended to provide only a

general outline of the subjects covered. It should neither be

regarded as comprehensive nor sufficient for making decisions,

nor should it be used in place of professional advice. Ernst &

Young LLP accepts no responsibility for any loss arising from

any action taken or not taken by anyone using this material.

.

Documents

UK Gift Card & Voucher Association VAT and Vouchers Gift Card & Voucher Association – VAT and Vouchers Page 2 Implementation of the 2015 VAT changes affecting the telecommunication,