The changes were announced the same day that the EU Commission released its long-awaited proposal for a harmonized approach to vouchers. The Commission wishes Member States to distinguish between single and multi-purpose vouchers. A single purpose voucher (SPV – a voucher that can only be redeemed for a single type of supply – where the information to account for the correct amount of VAT is available at issue) should be taxed both on issue and on any subsequent sale down the supply chain; a multi-purpose voucher (MPV) meanwhile should be taxed only at redemption. However, the distribution of an MPV for consideration is a separate taxable supply, as is any charge made by the redeemer to the issuer for redemption.
To a great extent the UK changes align with the Commission proposals. It creates a new category of voucher equivalent to the SPV, which from 10 May 2012 is taxed at the time of issue, even if the voucher is never redeemed. Other UK vouchers are not affected; the current complicated rules remain in place for these. However, these too will probably have to change once the EU proposals are adopted because the way the UK treats supplies by distributors is not consistent with the Commission’s proposals.
The UK has applied the comments made in Lebara to all types of SPVs, not just single purpose phone cards. Interestingly, many phone cards issued in the UK will not be SPVs because of the multiple uses that mobile phone credit can be put to, and hence will be unaffected. Such uses could include:
- making calls in the EU
- making calls outside the EU
- donations to charity by text
- downloading of applications and data.
The differing type and place of supply of these various services means these cards are multipurpose.
As far as vouchers which are now SPVs are concerned, this change both advances the time VAT is due and removes the VAT saving on non-redemption. This means there is a real commercial benefit for taxable persons to review what types of voucher they supply and switch from SPVs to MPVs if this is at all feasible. Examples provided by the UK tax authorities (HMRC) suggest they may be quite flexible in their interpretation of ‘multi-purpose’ which is encouraging. If this switch is not possible, suppliers should consider how to mitigate the extra costs these changes will lead to – changes in contracts may be required.
These changes give rise to some interesting questions. Where the SPV can only be redeemed for zero rate or exempt supplies, no VAT will be due. This is in line with the Commission’s view that the rights inherent in a voucher, and the underlying supply it can be redeemed for, are not separate transactions. This is because those rights (if separate) would normally be standard-rated, unless the legislation specifically says otherwise. However, HMRC is not being consistent here because they also demand that VAT is declared even where the voucher is not redeemed. If the inherent right is not a separate supply, then in cases where the voucher is not redeemed, has there actually been a supply?
The UK was clearly concerned that businesses might look to secure a benefit if they had warning of the changes. This is why the new rules took immediate effect from the date of the announcement, even though the relevant legislation is not yet enacted. The UK also introduced rules to tax on redemption any SPVs issued before 10 May and redeemed afterwards, if these would not be taxed in any other Member State. Without these rules, such vouchers would escape tax because VAT would be due neither at issue (when the old rules would have applied to tax them on redemption) or on redemption (when the new rules would apply to tax them on issue). Therefore, the UK’s approach in bringing in these rules may well be proportionate to the risk of non-taxation. HMRC could, for instance, have deemed that all existing SPVs unredeemed by 10 May should be taxed on that date, which would have been very difficult for suppliers to comply with.
However, set against that justification for HMRC’s actions, it is clear that businesses, having had no warning of these changes and no transitional period, could not have planned to issue a large number of vouchers before the rules changed. Therefore, any vouchers that span the change have been issued as part of normal commercial operations, not as part of any plan to avoid VAT. On that basis, is the immediate effect of these changes (and of HMRC’s approach in taking all the benefits of the new rules without shouldering any of the corresponding burdens) truly justified? No doubt we will see as time goes on.