Facebook
Norwich: 01603 616300

When do you Pay VAT on Gift Cards?

November 2020

Picture of Gift CardChristmas is approaching fast, and many businesses are relying on gift card sales this year more than ever. The law surrounding VAT on gift cards changed recently to align legislation with the EU. That’s why we’ve put together everything you need to know about selling gift cards and/or vouchers as a business.

Hearing of this legislation change, one of our clients posed an interesting question. This client owns a very lovely bookshop in Norfolk and they wanted to start selling gift cards. The question asked was whether VAT must be declared at the point of sale of the gift cards, or once they have been redeemed for goods.

On the face of it, this seems like an easy question to answer because books are zero-rated, meaning VAT wouldn’t need to be declared at any point. It isn’t quite as simple as that though, because it isn’t just books that are sold in the bookshop. There is also a vast array of book-related items on offer such as bookmarks and bookends, as well as merchandise such as mugs and bags.

This is where it gets a little more complicated. Many of the non-book items aren’t zero-rated, so VAT must be paid on them. The question remains then, does our client need to declare VAT on the sale of gift cards or at the point where the goods are redeemed?

In this instance, the answer is that VAT only needs to be declared on VAT chargeable products at the point they are redeemed with the gift card. We advised and supported our client through the process of rolling out gift cards so that now, she is selling them comfortably and compliantly.

However, if you, the reader, approached us about gift cards, we might give you a very different answer. This is the point of this blog, to highlight that the rules vary depending on your business and the products you sell.

The point at which VAT is declared for gift cards depends on whether it’s a single or multipurpose gift card. A single purpose gift card is one that allows the holder to receive goods or services of one type which are subject to just one rate of VAT. With these types of gift card, VAT is paid at the point of sale, not when it is redeemed.

Multipurpose gift cards are exactly the opposite. These are used when your business is selling a variety of products that don’t all fall under the same rate of VAT. When using these gift cards, VAT is paid once the goods are redeemed.

If, for example, you own a company that delivers one type of service, everything you do will be subject to the same rate of VAT. You would, therefore, be issuing single purpose gift cards, meaning VAT would be declared at the point of sale.

If, on the other hand, you own a general goods shop selling an array of different products from vegetables to toiletries, you would be issuing multipurpose gift cards and VAT would be paid at the point the gift card is redeemed. The appropriate rate of VAT would be charged on a product-by-product basis. Why someone would use a gift card to purchase vegetables or toiletries is a question for another blog.

It is worth pointing out that it isn’t always as simple as this though. Different rules apply when gift cards are sold at discounted rates. Matters are complicated further when one business sells gift cards that can be redeemed at other establishments. In these cases, more specific advice is necessary.

If you have any questions about this or any other matters relating to VAT, please do not hesitate to get in touch.

4 thoughts on “When do you Pay VAT on Gift Cards?

  1. kazu says:

    Very clear advice thank you. We do have a more complex scenario in consideration that we’d appreciate your review of.

    We are considering selling ‘vouchers’ that permit the purchase of services from other suppliers at a value far greater than the cash paid by the customer. The supplier would agree to respect the voucher value. Thereby the customer gets a discount. We get a commission. The supplier gets a new customer and order. There would be terms and conditions ie the voucher value can only be used in part payment, only redeemed once. We realise the supplier could circumvent us on the future orders but we also have a loyalty scheme to attempt to retain the customer. The services are unknown though could be predicted eg engineering services and products. The customers are likely from the same geographical area as the supplier but not necessarily (customer could be in UK EU or USA say, whilst we are based in the UK). Each voucher is uniquely identified and could be restricted to an individual supplier.

    1. Aston Shaw says:

      Hello,

      Thanks so much for getting in touch. This is a rather complex scenario and therefore not something we can so easily solve here in the comments section of our blog! However, I am sure this is something we can help you with, would you like for me to arrange a consultation between yourself and one of our VAT Specialists?

      All the best,

      Aston Shaw

  2. Laura says:

    Hi I’m a jeweller, I sell my own products online through my website. I’m not Vat registered. I want to start selling gift vouchers that can be redeemed through my website. I plan to post the recipient the gift voucher but would also like to provide it via email too (not as an instant download because I have to generate the code myself). So do I pay vat on the sale or all gift vouchers whether emailed or posted? Even though I am not vat registered?

    1. Aston Shaw says:

      Hi Laura,

      Thanks for your comment.

      Because the business is not VAT registered, you don’t have any obligations to pay VAT on the sale of any gift vouchers/cards, whether emailed or posted.

      Please do let us know if you require any further assistance.

      Kind Regards,

      Aston Shaw

Leave a Reply

Your email address will not be published. Required fields are marked *

Sign up for our news and business insight newsletter

No spam. No waffle. Just useful, practical and valuable news and insight, straight to your inbox. We always protect your personal data.

Aston Shaw Twitter logo

Have you considered hiring an apprentice? September is a common start date for apprenticeships, so now's a great time to give it some thought. Find out what we have to say about the brilliant apprenticeship scheme 👇 ow.ly/E2La50FbvsG

About 3 hours ago from Aston Shaw's Twitter via Hootsuite Inc.

Client Login