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VAT and vouchers: UK announces rule change as EC proposes reform

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VAT rules for single purpose face value vouchers will be changed with effect from 10 May, the government has announced, following a decision of the Court of Justice of the European Union. David Gauke, the Exchequer Secretary to the Treasury, said yesterday that a new clause would be added to the current Finance Bill to align UK law with EU law and ‘to protect public finances and prevent tax avoidance’.

On the same day the European Commission proposed a change to the common system of VAT as regards the treatment of vouchers, to ensure the ‘uniform tax treatment of all types of vouchers across all Member States’.

Vouchers represent a market of more than €52bn per year in the EU, the EC said. ’Prepaid telecommunications account for almost 70% of the voucher market, followed by gift vouchers and discount vouchers. However, differences in national VAT rules on vouchers lead to serious market inefficiencies. Instead of being able to really benefit from the Single Market, companies face problems of double taxation and difficulties in expanding their business across borders.’

Responding to Gauke’s ministerial statement, HMRC explained in Revenue & Customs Brief 12/12 that Lebara Limited operated a telecommunications business by which international telephone calls were made available to customers in other member states through the use of face value vouchers.

‘Lebara sold the vouchers to distributors in other member states who then sold them on to other distributors or direct to the end customers. The case before the CJEU concerned the proper analysis of the supplies involved and how such services provided via vouchers should be taxed.’

As Alan Dolton reports in today’s issue of Tax Journal, the CJEU held that Lebara Limited made a single supply to the intermediate distributor, and did not make a further supply to the ultimate consumer.

The decision meant that the VATA 1994 Sch 10A provision for certain types of voucher was incompatible with EU law, HMRC said. The proposed change was intended to safeguard significant revenue and prevent ‘artificial VAT avoidance’.

‘Given the scale of this risk it has been necessary to implement these changes with immediate effect,’ HMRC added.

‘However, businesses issuing and redeeming the affected types of vouchers will not be required to account for VAT under the new rules until the Finance Bill receives Royal Assent. They will then need to make an adjustment to cover the intervening period. Alternatively, businesses may opt to implement the changes straight away to avoid the need for an adjustment.’

In a tax information and impact note HMRC said: ‘VAT on single purpose face value vouchers will now become due, if applicable, when they are issued rather than when they are used to purchase goods or services. Tax will also be due on each subsequent sale of the voucher, subject to the usual rules on liability and place of supply.’

HMRC also published draft legislation and an explanatory note.