UK Gift Card & Voucher Association – VAT and Vouchers
Important information ►
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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.
Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Agenda ► ► ►
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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.
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
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.
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Instrument of Payment ►
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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.
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Current UK voucher rules ► ►
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.
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Retailer vouchers versus Credit vouchers
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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.)
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What are „face value vouchers‟?
Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
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: ► ►
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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 crossborder trade.
Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Proposed EU legislation
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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.
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Effective date: 1 January 2015.
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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”
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Makes distinction between vouchers and payment instruments.
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The supply (issue) and subsequent redemption of the voucher are treated as a single transaction for VAT purposes.
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The VAT treatment of the transaction is the same as if no voucher was used.
Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Proposed EU Legislation: types of vouchers Single-purpose voucher (“SPV”) ► ►
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“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”) ►
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“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.
Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Types of vouchers for VAT purposes Type of Voucher
UK VAT
EU Proposal*
Open loop voucher
Credit Voucher
SPV/MPV
Credit Voucher
SPV/MPV
Retailer Voucher
SPV/MPV
Voucher is issued by one party but redeemed by another.
Restricted loop voucher Voucher is issued by one party, but redeemed by a selected number of parties.
Closed loop voucher Voucher is issued and redeemed by the same party.
*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. Page 10
Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Scenario 1: Retailer Voucher (Closed Loop) Customer redeems voucher at selected retailer
Voucher sold for £80
Retailer
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Customer
Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
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.
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
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.
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Scenario 2 : Retailer Voucher with Intermediary (Closed Loop) Face value of voucher £100 Customer redeems voucher with issuer
Issues £90
Issuer
Intermediary
Sells Voucher £100
Issues Schedule 10A invoice
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Customer
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.
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
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.
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
MPV: EU VAT Analysis Face value of voucher £100 Customer redeems voucher with issuer
Issuer
Issues £90
Intermediary
Sells Voucher £100
Raises invoice for distribution service £10 (VAT inclusive)
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Customer
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.
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
SPV – Service Charge Face value of voucher £100 Customer redeems voucher with issuer
Issues £100
Issuer
Intermediary
Sells Voucher £100
Raises invoice for distribution service £10 (VAT inclusive)
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Customer
SPV – Buy/Sell Face value of voucher £100 Customer redeems voucher with issuer
Issuer
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Issues £90
Intermediary
Sells Voucher £100
Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Customer
Scenario 3 – Credit Voucher (Restricted/Open Loop)
Retailer 1
Voucher sold for £100
Issuer
Retailer 2
Customer Customer redeems voucher at a selected number of retailers Retailer 3
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
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?
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
MPV: Proposed EU VAT Analysis £10 service charge + VAT
Retailer 1
Voucher sold for £100
Issuer
VAT
Customer
Retailer 2
No VAT Customer redeems voucher at a selected number of retailers Retailer 3
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
SPV: Proposed EU VAT Analysis
Retailer 1
Voucher sold for £100
Issuer
Retailer 2
Customer VAT due on issue of voucher (but who pays?)
Customer redeems voucher at a selected number of retailers Retailer 3
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Scenario 4: Commission model Customer redeems voucher with issuer
Voucher sold for £100
Issuer
£100
Supermarket
Voucher £100
£100
Intermediary £30 fee for collection of payment
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£20 fee for selling vouchers
Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Customer
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. Page 26
Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
Scenario 5: Sales To Corporate Clients Face value of voucher £100 Employee redeems voucher with issuer
Issuer
Issues Voucher £90
Reward/Incentive Provider
Sells Voucher £95 + VAT
EY + VAT
Employees Issues Schedule 10A invoice
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
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.
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
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Implementation of the 2015 VAT changes affecting the telecommunication, ecommerce and broadcasting sectors
