Retailers that have been hit by falling sales could face further losses, warns chartered accountants Clement Keys as HMRC has announced that it is to close a VAT loophole on face value vouchers that could leave certain retailers out of pocket.
The announcement follows a defeat in the Court of Justice of the European Union for the HMRC that is now looking for a way to make up a significant loss of revenue.
“The loophole arose from the way different member states interpreted the EC legislation on face value vouchers which meant that in certain circumstances VAT was never accounted for,” says Steven Simmonds, Director of VAT Services at Clement Keys.
Whilst the legislation is predominately aimed at telephone cards it will affect any ‘single purpose face value voucher’ and will mean that VAT will need to be accounted when the card is sold to the end user. At the present time the cards are treated as non VATable supplies.
Other face value vouchers affected include electronic download vouchers, where they can only be redeemed for downloads, electronic apps, file streaming or other electronically supplied services, group discount vouchers, where they are redeemed for a specific service or goods and vouchers for admission to amusement parks which cannot be exchanged for other goods and services in the park.
Although the necessary legislation will not be passed until the 2012 Finance Bill receives Royal assent HMRC have warned that the effects of the legislation will be backdated to 10 May 2012 in order to prevent tax avoidance. This means the retailer will have to account for the VAT from this date even if they have not specifically charged the customer that VAT.
Retailers will find themselves out of pocket when vouchers that were originally purchased before the 10th May are redeemed after this date. In this instance the VAT will be due on the face value, which includes the retailers profit and the amount of VAT could easily be more than the amount of profit included in the voucher.
Retailers that deal in such vouchers are advised to seek specialist advice.