VQOTW: VAT change of rate and impact on vouchers

My client operates a luxury hotel in the UK. They have recently reopened and will now recommence selling face value gift vouchers. The holder can redeem their vouchers against room reservations, dining at the restaurant/bar and when using the leisure and spa facilities. The restaurant does not offer a takeaway service. Historically the client has always charged VAT at the standard rate on all their supplies. Could you please clarify the impact of the temporary rate change on the issue of face value vouchers. When will the VAT be due and at which rate?

From 15th July 2020 a new temporary reduced rate (5%) was introduced for sleeping accommodation in hotels and similar establishments, on-premises catering services, hot takeaway food and drink and admissions to certain attractions. This rate can be applied until 12th January 2021. For further guidance see the link below for affected supplies: https://www.gov.uk/government/publications/revenue-and-customs-brief-10-2020-temporary-reduced-rate-of-vat-for-hospitality-holiday-accommodation-and-attractions/guidance-on-the-temporary-reduced-rate-of-vat-for-hospitality-holiday-accommodation-and-attractions 

Your client will be able to charge VAT at the reduced rate on room reservations and on-site dining until 12th January 2021, however the supply of alcoholic drinks will remain at the standard rate. Charges for use of the leisure and spa facilities will also remain at 20%.

You are correct in anticipating that these changes will alter the accounting treatment for VAT when issuing face value vouchers. In summary there are two main types:

  • Single purpose face value vouchers (SPFVV). Where at the time of issue, the goods or services have a single VAT liability and the place of supply is known.
  • Multi purpose face value vouchers (MPFVV). These are vouchers which do not fall within the definition of a SPFVV.

In your client’s case, for vouchers issued and/or redeemable whilst the temporary reduced-rate is in place, the treatment will change from that of a SPFVV to a MPFVV.

A voucher issued up to 12th January 2021 will be a MPFVV, because the liability of the underlying goods or services is not known and spans across 2 different VAT rates. The client will be required to account for any VAT on redemption for this particular type of voucher, instead of when it is issued.

Gift vouchers issued after the 12th January 2021 will return to being SPFVV’s, as all supplies will be subject to a single rate of VAT at the standard rate and VAT should be accounted for on issue not redemption. Further guidance on vouchers can be found in VAT Notice 700/7 section 9.

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Priyesh has worked as a VAT Compliance Officer for HMRC since 2013 prior to joining Croner Taxwise. He initially worked in Small and Medium Enterprises before moving on to Wealthy & Midsize Businesses in 2014 where he gained a broad understanding of VAT and trained new VAT entrants.

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