Gift vouchers and VAT for an online shop: a £50 voucher, single-purpose or multi-purpose, and when the VAT is due

A shop that sells gift vouchers around Christmas gets a VAT question it did not have in August: is there VAT on the £50 a customer pays today for something they will spend in February? The answer depends on what kind of voucher it is, and it changes which VAT return the money lands in.

What GOV.UK says

The HMRC information sheet on face value vouchers, published 30 November 2018, covers vouchers issued on or after 1 January 2019. It sets out two kinds.

• Single-purpose voucher. The place of supply of the goods or services is known when the voucher is issued, and those goods or services all carry one VAT liability (standard, zero, reduced or exempt). VAT is due when the voucher is issued, and on each transfer. When the issuer and the redeemer are the same business, there is no further supply on redemption.
• Multi-purpose voucher. The sheet says any voucher that is not single-purpose (other than a discount voucher) is "by default, a multi-purpose voucher". The money paid when it is issued, and on each transfer, is disregarded for VAT. VAT is due on redemption, on the amount paid for the most recent transfer if the redeemer knows it, otherwise on the face value.

The sheet gives its own £50 example: a £50 voucher used towards £70 of standard-rated goods, with £20 paid in cash. Single-purpose: the issuer accounts for VAT on the £50 charged for the voucher, and on the £20 cash. Multi-purpose: the issuer has no VAT to account for at issue, and VAT is accounted for on the full £70 at redemption.

The separate GOV.UK policy paper, "VAT treatment of vouchers", published 6 July 2018, says the rules concern when VAT is due and, for multi-purpose vouchers, the amount it is due on. They do not decide whether VAT applies at all.

The sum, worked on a £50 voucher

At the 20% standard rate, VAT inside a VAT-inclusive price is the price divided by 6.

This is our arithmetic from the 20% rate and the figures in the HMRC example. The total tax is the same either way; what moves is the quarter it is paid in. A shop on quarterly returns that sells 100 vouchers in December is paying £833.33 of VAT on money for goods not yet handed over if its vouchers are single-purpose, so the cash-flow point matters in the quarter when vouchers sell best.

Which kind is yours?

I have not found a rule that names a typical online shop as one or the other. Reading the definition, a voucher that can only be spent on goods that are all standard-rated, supplied in the UK, looks like it fits the single-purpose test. A voucher that can be spent on a catalogue with zero-rated items such as children's clothes or books would not have "a single VAT liability" when issued, and so would default to multi-purpose. That is our reading of the definition, not HMRC's statement about shops, so check it with the person who prepares your VAT return.

What to do before December

• Write down the decision and the reason for it, so the VAT return treats every voucher the same way.
• Check whether you are registered. See the VAT threshold for online sellers.
• Keep postage separate when a basket is paid partly with a voucher: VAT on postage and delivery charges.
• Check the margin on discounted voucher offers. A £20 voucher sold for £18 is treated, for a multi-purpose voucher, as £20 on redemption unless you can show what the customer paid. Work the effect on a product with the product margin calculator.

What I did not read

I did not read VAT Notice 700/7 in full, so I have not checked the definitions beyond the 2018 information sheet. Neither page I read addresses vouchers that are never redeemed, expiry dates, refunds of unspent value, or consumer-law rules on voucher terms. I have not read any guidance on vouchers sold through a marketplace or a payment platform, or on vouchers sold outside the UK, and I have not checked for changes since the 2018 sheet.

Overlyft builds AI staff who join your shop team and keep a running list of vouchers sold and spent, work out the VAT each way from the figures above, and hand the monthly total to the person who prepares your VAT return to confirm.

This is general information, not legal or financial advice. Check the GOV.UK pages and your own VAT position with a qualified adviser.