Alert: VAT changes for vouchers


There have been some significant developments concerning the VAT treatment of voucher markets in the UK and at an EU level, both announced 10 May 2012.


The VAT treatment of voucher transactions, particularly through cross border supply chains, has been fraught with difficulties in the absence of EU legislation clearly defining a common EU VAT treatment, with the consequence of various Member States applying their own national practices on an inconsistent basis leading to VAT inefficiencies or avoidance.

In a press release published 10 May, the EU Commission proposes new VAT rules to create a genuine single market for vouchers, noting that there is no justification for the ever-expanding voucher market to be held back because of uncertainty and complications in the tax rules.

The EU Commission proposes a uniform set of rules, to be adopted at a national level by 1 January 2014 and to have effect from 1 January 2015. These rules cover:

  • a new definition of different categories of vouchers

  • the time of transaction for voucher transactions – at thepoint-of-sale and/or redemption, depending on the nature of the voucher

  • distinguishing vouchers from other means of payment (including mobile payment services)

  • clarifying the VAT treatment of free discount vouchers

  • introduction of common rules for supply chains involving the distribution of certain vouchers through intermediaries

  • technical measures to deal with input VAT recovery, redemption and reimbursement procedures, determining
    the person liable for payment of the VAT and other obligations for businesses

For further details please click here.


At a domestic level, legislative changes are already underway in the UK impacting the voucher market. The ECJ’s decision in Lebara v HMRC was published on 3 May 2012, highlighting VAT issues for supply chain distribution of vouchers. UK based telecoms operator, Lebara, sold phone cards to distributors in other Member States who then resold them to end-consumers directly or through other distributors.

An end-consumer’s use of the phone cards was routed through a UK sited telephone exchange. HMRC considered there were two supplies by Lebara, one to distributors which was outside the scope of UK VAT, and the other to users of the cards at the time of redemption, which HMRC considered to be taxable in the UK.

The ECJ was asked to consider the nature of the phone card transactions and when they should be taxed. It ruled against HMRC, finding that there was a single supply by Lebara to distributors and not a second supply to endusers on redemption.

Following the Lebara decision, the UK Government has now announced a change in UK legislation on the basis that it is incompatible with EU law. It is the Government’s intention to introduce this legislation with effect from 10 May 2012 as part of the Finance Bill 2012, although VAT arising under the new rules should not become payable until after Royal Assent.

The change is important for all businesses involved in the sale or redemption of vouchers – it now creates a UK VAT charge upfront at the time of sale/issue of single purpose vouchers where there was no UK charge previously. Single purpose vouchers are those which carry the right to receive goods/services of one type which are all subject to a single VAT rate, such as telecoms services and e-services (including streamed movies, music and games, and electronic download vouchers).

Certain vouchers will be excluded if they are not single purpose vouchers, depending on what they can be redeemed for – these may include multi-retailer vouchers, hotel vouchers which can be used in more than one country, cinema and game console vouchers, and book tokens, if, for example, they can be redeemed for zero-rated books and standard-rated e-books. There are, however, also certain transitional provisions to be aware of, affecting relevant vouchers issued before 10 May 2012 but redeemed afterwards, creating a VAT charge on the redeemer on redemption of such vouchers in the UK.

HMRC’s announcement is in Business Brief 12/12:

Please contact a member of Bird & Bird’s International Tax Team if you have any queries on this alert.