Gift cards look like a sale, but the business has not yet supplied anything. UK VAT rules split vouchers into two types, and the type decides when VAT is due.
Single-purpose and multi-purpose vouchers
| Single-purpose voucher (SPV) | Multi-purpose voucher (MPV) | |
|---|---|---|
| Test | place of supply and VAT liability of the goods or services are known when the voucher is issued | either is unknown at issue |
| Example | a voucher for a specific spa treatment, or for a shop selling only standard-rated goods | a department store or supermarket card usable on zero- and standard-rated goods |
| When VAT is due | when the voucher is sold (and on each transfer in a distribution chain) | when it is redeemed, on the goods or services actually supplied |
| Redemption | no further VAT | VAT on the supply at the rate of what is bought |
A restaurant voucher is usually an SPV if the restaurant only makes standard-rated supplies. A bookshop that also sells stationery issues MPVs, because a book is zero-rated and a notebook is standard-rated.
Bookkeeping for a multi-purpose voucher
A shop sells a £50 gift card in December. Nothing is taxable yet:
| Account | Debit | Credit |
|---|---|---|
| Bank | £50 | |
| Gift card liability | £50 |
In January the card buys a £30 zero-rated item and a £20 standard-rated item (including VAT):
| Account | Debit | Credit |
|---|---|---|
| Gift card liability | £50 | |
| Sales – zero-rated | £30.00 | |
| Sales – standard-rated | £16.67 | |
| Output VAT | £3.33 |
Bookkeeping for a single-purpose voucher
VAT is accounted for on issue: £50 received for a spa voucher becomes £41.67 deferred income and £8.33 output VAT. On redemption the deferred income is released to sales with no further VAT.
Unredeemed and expired vouchers
When an MPV expires unused, there is no supply and no VAT: the liability is released to income outside the scope of VAT. For an SPV, VAT was already paid on issue and is not refunded on expiry. For the accounts, release unredeemed balances when redemption becomes remote, based on the business’s experience, not only at the formal expiry date.
Discount and promotional vouchers
Vouchers given away free or entitling the holder to a discount (such as “£10 off your next order”) are not vouchers in this VAT sense. VAT is due on the amount the customer actually pays after the discount. Vouchers given away with no consideration are not supplies.
Selling through third parties
When gift cards are sold through intermediaries, the timing and value of VAT for SPVs can arise at each transfer, and the commission paid to the intermediary needs separate treatment. HMRC explains the rules in its notice on business promotions and vouchers (VAT Notice 700/7).
For the general approach to income received in advance, see deferred income and revenue recognition.