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The VAT consequences for issuing vouchers due to COVID-19

Published on: 09 april 2020
Type of publication Insight
Related topics

Gyms and catering establishments have now been closed for some time and many events have been cancelled due to the drastic measures implemented by the government. We have recently seen a new trend emerging: gyms, event agencies and travel organisations are offering their customers vouchers to compensate for their subscription and/or cancelled events/trips. We will be providing a summary of the VAT consequences associated with issuing such vouchers in this article.

Voucher definition

A voucher is a means (instrument) which can be redeemed for particular goods or services, requiring no additional payment. The voucher states with whom and for which goods or services it can be redeemed and the conditions which need to be met for using the voucher.

We distinguish between single purpose vouchers and multi purpose vouchers where the VAT is concerned. If details are available regarding which good and/or service is going to be supplied and which VAT rate will apply at the time of issuing the voucher, then this is a single purpose voucher. If this is not clear (for example, if the voucher can be redeemed for various different goods and/or services, either or not taxed at different VAT rates), then we refer to this as a multi purpose voucher. VAT will be owed at the time a single purpose voucher is issued, whilst for multi purpose vouchers VAT will not be due until the voucher is exchanged and/or redeemed.

VAT consequences for issuing vouchers due to COVID-19

The aforementioned means that if the consumer is issued with a single purpose voucher - to compensate for the cancelled supply due to the coronavirus - the original VAT due will remain in force. The voucher will serve to replace the ‘cancelled service’.

However, if the consumer receives a multi purpose voucher to compensate for the cancelled service, no VAT will be due at the time of issuing the voucher, but only when exchanging it. In such cases the VAT originally owed and (possibly) paid to the Tax Authorities may be reclaimed.

Discount coupons

Free coupons can also be issued by entrepreneurs (by way of compensation), which the consumer will need to supplement. Such coupons do not qualify as vouchers for VAT purposes, but as discount coupons. This generally means that, when redeeming the discount coupon, VAT must also be paid on any additional payment.

Any questions?

We have noted that the exact impact in individual cases will depend on specific facts and circumstances. So please do get in touch with us to discuss the VAT consequences in your situation. We would gladly look into the benefits which can be achieved for you.

This content was published more than six months ago. Because legislation and regulation is constantly evolving, we recommend that you contact your Baker Tilly consultant to find out whether this information is still current and has consequences (or offers opportunities) for your situation. Your consultant will be happy to discuss the latest state of affairs with you.