Vouchers in this context are gift cards and vouchers, with examples including simple book tokens, gift vouchers and electronic vouchers purchased from specialist businesses. The UK retail market for vouchers is now worth around £5bn a year, with growth driven by new electronic technology and the increased use of vouchers in business promotion.

The government supports the improvements in the directive, which makes the VAT treatment of vouchers simpler and more consistent with key VAT principles. It reduces uncertainty and aligns the rules in member states, better facilitating cross-EU border transactions.

The consultation sets out how the government plans to transpose this legislation into UK law. It explains the new rules and, the future VAT treatment for vouchers in circulation which were issued before the new rules start.

Previously under UK VAT legislation, the customer was deemed to be receiving two supplies - a voucher and an underlying supply of goods or services.

The directive makes it clear that for VAT purposes there is no longer a separate supply of a voucher. Instead there is only the supply of the underlying goods or services, which will be handed over, or provided, at a later date.

The directive distinguishes vouchers from simple payment systems because intrinsically, a voucher carries an entitlement to be accepted as consideration for identifiable goods or services, which a payment system does not.

These new rules do not include transport and admission tickets, postage stamps, pre-pay electronic products and payment mechanisms, on-line credits or telephone SIM cards. They also widen the definition of a single purpose voucher (SPV) as being one where the place of supply of the goods and services to which the voucher relates, and the VAT due on those goods or services, are known at the time of issue.

In addition, the directive defines a multi-purpose voucher (MPV) as a voucher which is not a single purpose voucher. These are effectively gift vouchers, where a payment has been made but the exact nature of what is to be provided is not known at the time of payment. It is only when the voucher is redeemed that the VAT situation becomes clear. At that point, the redeemer of the MPV is required to account for VAT on what has been provided for the voucher as consideration.

In light of this the consultation looks at new rules for intermediaries, and the impact of the proposed changes on vouchers bought before the January 2019 for implementation of the new regime.

As this is a mainly technical issue with specialist interests, meetings will be organised through the principal representative body, The UK Gift Card and Vouchers Association.

HMRC says it expects to publish a summary of consultation responses during Spring 2018. Draft legislation will be published in Summer 2018 and introduced in the Finance Bill 2018/19.

The deadline for comments on the consultation is 23 February 2018.

HMRC consultation, VAT and vouchers issued 1 December 2017.