Processing VAT on gift vouchers can still be a bit of a thing. The rules for VAT processing have changed as of 1 January 2019. We are happy to explain how VAT on gift vouchers works, what rules there are and how to process them correctly in your administration.
Old law versus new law
Before 1 January 2019
Before 2019, VAT was only remitted when the gift voucher was redeemed by a customer. This meant that entrepreneurs only had to calculate and remit VAT at the time of the actual purchase of a product or service.
After 1 January 2019
But from 1 January 2019, new rules will apply to gift vouchers. Namely, a distinction will now be made between single-purpose vouchers and multi purpose vouchers. Here, the timing of VAT payment depends on the type of gift voucher.
Different types of gift vouchers
Single-purpose vouchers
With a single-purpose voucher we mean a gift voucher where, at the time of issue, 2 things are already clear:
- For which product or service the voucher will be used.
- Which VAT rate applies here.
At a single-purpose voucher VAT must be remitted directly at the time of sale of this gift voucher.
Example:
A restaurant sells a €100 gift voucher that can only be redeemed at that restaurant. Since the VAT rate is fixed (9% for food), the restaurant has to pay €8.26 VAT immediately (€100 / 1.09 = €91.74 turnover and €8.26 VAT).
Multi purpose vouchers
At a multi purpose voucher it is slightly different. For this type of gift voucher can be redeemed for various products or services, where the VAT rate is not yet fixed at the time of sale. In such a case, VAT is calculated only when the voucher is redeemed by the customer.
For entrepreneurs, it can be more advantageous to sell mainly multi-purpose vouchers. This is because VAT does not have to be paid until the customer redeems the voucher. This keeps the money available within the business for longer, which can help with cash flow.
Example:
A department store sells a €100 gift voucher, which can be used for a variety of products. Because VAT rates differ, the department store does not have to pay VAT at the time of sale. Only when the customer uses the voucher (e.g. €50 for clothes and €50 for food), VAT is calculated based on the final use.
VVV Gift card as an example:
A well-known example of a multi-purpose voucher is the VVV Gift Card. As it can be spent in various shops and catering outlets, the VAT rate only applies at the time of redemption. This means that no VAT has to be paid when a VVV Gift Card is sold. Only when a customer turns in the VVV voucher at a shop or restaurant, the correct VAT rate is applied.
When does a gift voucher turnover?
Gift vouchers officially count as revenue at different times. In fact, it depends on the type of voucher:
- For single purpose vouchers: Sales and VAT are booked here at the time the receipt is sold.
- For multi purpose vouchers: With this type of voucher, revenue and VAT are only booked when the voucher is redeemed for a product or service.
Example:
A business owner sells a €50 gift card in January. The customer does not use it until March to pay for a meal. With a Single Purpose Voucher, the entrepreneur already has to pay VAT in January. With a Multi Purpose Voucher, VAT is not calculated until March, depending on the product purchased.
Free gift vouchers and VAT: what about it?
Sometimes companies give away gift vouchers for free as promotions or to compensate customers. But how do you process this in your records?
- Completely free gift vouchers (no payment by the customer): If a gift voucher is given away for free and there is no payment in return, no VAT is applicable when issued. Only upon redemption, VAT is calculated on the product or service purchased with the voucher.
- Gift vouchers with partial payment: For example, if a customer receives a €50 gift voucher on a €100 purchase, VAT is calculated on the amount actually paid (€100). The voucher itself is considered a discount in this case.
How to process gift vouchers properly in your records
Proper administration of gift vouchers is crucial to avoid errors in your VAT return. In doing so, pay attention to the following points:
- Make sure the gift card is classified correctly (single-purpose or multi-purpose).
- Note the correct time of revenue entry and VAT payment.
- Clearly mention the gift voucher on your invoices and in your bookings.
- Keep a good record of which gift vouchers have been redeemed and which are still outstanding.
- Register expired gift vouchers correctly as additional revenue.
Beware of VAT on a voucher or discount voucher
A gift voucher is very different from a discount voucher. Because with a voucher the full amount is paid in advance and the VAT scheme described above applies. A discount voucher is instead a discount on a product or service, where VAT is calculated on the original price before the discount. Good to know that difference.
It is also important to be keen on the processing of action coupons or vouchers that are given away for free. Because sometimes a different VAT regime may apply.
So... make sure the VAT rules on gift vouchers are applied correctly. And, of course, keep good records in your accounts. That way, you can avoid problems with the tax authorities. Do you have questions about processing gift vouchers? Then contact a specialist to make sure your administration complies with current legislation.
