COVID - The gift-card that keeps on giving…

A recent instance where I provided advice, highlighted to me that the effects of COVID on VAT are not quite behind us. One of my clients supplied vouchers through during the pandemic, which could be used for various activities, including those eligible for the temporary reduced rate for hospitality.

Vouchers fall into one of two categories:

1. A single purpose voucher (SPV)* is a voucher that at the time it is issued where:
   1. the supply for which the voucher can be redeemed is deemed to take place for VAT purposes is known (note this need not be in the UK)
   2. all supplies for which the voucher can be redeemed are liable to the same rate of VAT, and
   3. (crucially) the rate of VAT that applies is known
      
2. A multiple purpose voucher (MPV) is any other voucher. VAT on MPVs is accounted for only when they are redeemed with issue being disregarded for VAT purposes.

*VAT on SPVs is accounted for on any issue (or transfer for consideration) and then again when redeemed (with the input VAT claimed by the issuer at this time)

As a reminder here are the key dates relating to the temporary reduced rate:

• 8 July 2020, the Chancellor announced that the temporary reduced rate would come into effect from 15 July 2020 and apply until 30 September 2020 as part of the “Eat out to help out” campaign.
• On 24 September 2020 the end date of the scheme was extended to 31 March 2021.
• On 3 March 2021 it was further extended with 5% applying until 30 September 2021 and 12.5% applying from 1 October 2021 until 31 March 2022.

Depending on when vouchers were issued during this period, if they had the potential to be redeemed against supplies within the temporary reduced rate, the VAT treatment may have changed several times.

Vouchers that could be redeemed for the supplies included in the temporary reduced rate, that had been issued prior to 8 July 2020, and expired at any time after 15 July 2020, could now potentially be redeemed for either standard rated or reduced rated services and therefore should, at this point, be treated as MPVs and any VAT accounted for on them reclaimed.

Between 15 July and 23 September 2020, any vouchers solely for hospitality with the scheme, that were issued with an expiry date before 30 September would be SPVs with 5% VAT applicable. However, on 24 September they would revert to being MPVs. Similarly, vouchers issued from 1 October 2020 to2 March 2021, that expired before 31 March 2021 would be SPVs at 5% on issue but became MPVs on 3 March 2021.

Vouchers issued between 3 March 2021 and 30 September 2021 with an expiry before 30 September 2021 would be SPVs as would vouchers issued between 1 October 2021 and 31 March 2022 with an expiry date before 31 March 2022 (VAT rates of either 5% or 12.5% apply respectively).

Vouchers issued from 8 July 2020, until 31 March 2022, which could be redeemed against either hospitality at the reduced rate or other supplies would also be MPVs throughout the period until 31 March 2022.

Of course, this just looks at the issuing of vouchers. When the vouchers were redeemed during this period, they should have had VAT accounted for at the rate prevalent at the time the actual supply took place which could have been any one of 5%, 12.5% or 20%. Add to this complexity, the challenges around determining what supplies would fall within the temporary reduced rate and I am convinced that there are plenty of traders who have overpaid VAT in this period.

As the scheme approaches its 4-year anniversary in July 2024, businesses have until then to make claims for VAT incorrectly accounted for in July 2020. It's advisable for any business involved in voucher transactions during this period to review the treatment they applied.

In the case of my client, we were looking at this issue in relation to whether they had exceeded the threshold and should have registered within the past four years. In cases of a late registration, it is worth remembering that HMRC can assess for up to 20 years, so the gift-card may keep on giving for some time to come.

Considering the VAT implications surrounding voucher transactions during the COVID period, it's crucial for businesses to review their treatment to ensure compliance. As the scheme's 4-year anniversary approaches in July 2024, there's a deadline for making claims for VAT incorrectly accounted for in July 2020. It's advisable for any affected business to take proactive measures and assess their voucher-related actions during this period. For guidance and assistance in navigating through these complexities, don't hesitate to get in touch with MHA. Our team is here to provide expert advice and support to ensure your VAT compliance.