Finance Bill 2018-19 – VAT grouping and VAT on vouchers

Tue 18 Sep 2018

VAT Measures in the 6 July 2018 draft legislation for Finance Bill 2018-19 included those on VAT grouping and the VAT treatment of vouchers. For further information on either of these changes, please get in touch with a member of the Mazars VAT team.

VAT grouping

VATA 1994 s43A will be amended to allow a non-corporate entity (e.g. partnership or individual) to join a VAT group with its body corporate subsidiaries if it controls all of the members in a VAT group. The measure will have effect after the date of Royal Assent of FB 2018-19, from a date to be appointed by Treasury regulation.

Under the new amendment, the non-corporate entity must demonstrate that it controls all of its body corporate subsidiaries. The test at the proposed new VATA 1994 s43AZA will apply assuming the non-corporate entity would pass the test if it was a corporate body.

Anti-avoidance will also be introduced to prevent misuse of VAT grouping eligibility criteria.

Comment

This measure may simplify VAT arrangements for businesses involving both corporate and non-corporates (for example such as some structures involving partnerships), and aligns UK rules with the decision in the CJEU case of Larentia & Minerva (cases C-108/14 and C-109/14).

VAT treatment of vouchers

UK VAT legislation is to be changed to come in line with Council Directive (EU) 2016/1065 so that vouchers purchased for cash and used to buy something will neither escape taxation nor be taxed twice. HMRC is still consulting with industry over the changes, so a tax impact and information note on this measure will only be available on Budget Day.

VATA 1994 Schedule 10A currently dealing with face value vouchers, will not apply to such vouchers issued on or after 1 January 2019. Instead a new SCh10B will apply.  Postage stamps will be dealt with as currently (consideration for postage stamps will be disregarded for VAT purposes except to the extent the consideration exceeds the face value), but will not be covered in Sch10B.

The intention is to simplify the legislation: there will be two categories of voucher.

• A single purpose voucher, for which at the time it is issued the place of supply is known and the goods or service for which it can be exchanged fall into a single VAT category (standard rated, zero rated, reduced rated, or exempt or otherwise not taxable).  In such a case if the issuer of the voucher will supply the goods, any VAT is due at the time the voucher is issued.  Otherwise when the voucher is exchanged, the provider of the goods or service is treated as making a VAT supplying to the issuer.
• This widens the current definition of a single purpose voucher, which must represent the right to receive goods or services of one type subject to a single rate of VAT.
• A multipurpose voucher (MPV) – which is not a single purpose voucher.  The consideration for the issue or subsequent supply of an MPV is disregarded for VAT.  There is a supply for VAT purposes when the voucher is redeemed that depends on whether the supplier of the goods or services is aware of the most recent transfer of the voucher.  If they are, that is the VAT inclusive consideration.  If they are not, the VAT inclusive consideration is the face value of the voucher.  The Government response document has indicated it will be possible to factor any known discount into the VAT required to be accounted for.

The impact of this change (apart from the boundary of what is and is not an MPV) is that it will no longer be necessary to tax MPVs transferred by intermediaries between the point of first issue and the point of redemption. Any related input VAT for the issue and subsequent transfer in a voucher supply chain will not be deductible.  However output VAT will be due on any commission an intermediary receives in the supply chain (giving an entitlement to input VAT recovery in relation to expenditure incurred in obtaining that commission. Intermediaries in a voucher supply chain, where the intermediary is acting in his own name and VATA s47(3) does not apply (where HMRC would treat the agent as making both a supply to and by himself), will be treated as a supply by and to the intermediary.

Where the voucher is given as part of a composite supply, if the total consideration for the transaction would be the same whether or not the voucher was given, the voucher is to be treated as supplied for no consideration. There is an anti-avoidance provision in relation to this.

Comment

Essentially these changes will make the rules for the tax treatment of vouchers consistent, especially where they can be used either in the UK or elsewhere in the EU. This is aimed at preventing either non-taxation or double taxation of the goods or services relating to the vouchers. It affects only vouchers, such as gift cards, for which a payment has been made and which will be used to buy something.

As a result of the changes voucher intermediaries may be considering changing their business model from buy/sell arrangements to agency arrangements with commission. Further considerations may be necessary where the voucher intermediary also facilitates the supply of goods or service for an MPV, so that it is clear which entity is liable for the output VAT.  The HMRC response document indicates businesses should take a pragmatic approach to identifying whether a voucher is issued before or after 1 January 2019.