VAT on vouchers: single and multi purpose

For vouchers issued on or after 1 January 2019, VAT depends on whether the voucher is single purpose or multi purpose. If the VAT rate and the place of supply of the goods or services are known when the voucher is issued, it is a single purpose voucher and VAT is due when it is sold; otherwise it is a multi purpose voucher, its sale is ignored for VAT and VAT is due only when it is redeemed.

What counts as a voucher for VAT?

The rules are in Schedule 10B to the VAT Act 1994, inserted by Finance Act 2019 for vouchers issued on or after 1 January 2019. Paragraph 1 sets three conditions. Someone must be obliged to accept the instrument as payment for goods or services; the goods or services, or the businesses that must accept it, must be limited and stated on the instrument or in its terms and conditions; and the instrument must be transferable by gift. It can be physical or electronic.

Gift cards, book tokens and pay as you go phone cards are typical vouchers. Paragraph 1(5) excludes three things outright: instruments that only give a reduction in price (money off coupons and discount vouchers), tickets for travel or admission, and postage stamps. VAT Notice 700/7 adds that SIM cards, electronic money, credit cards, software access keys and non transferable vouchers are not vouchers either. Money off coupons follow their own rules, covered on our page on promotional offers and VAT.

How do you tell a single purpose voucher from a multi purpose one?

Under paragraph 4 of Schedule 10B, a voucher is a single purpose voucher (SPV) if, at the time of issue, two things are known: the place of supply of the goods or services, and that every possible redemption falls into one supply category. The categories are standard rated, reduced rated, zero rated, and exempt or otherwise non taxable. Paragraph 6 makes every other voucher a multi purpose voucher (MPV).

HMRC’s examples of SPVs in Notice 700/7 paragraph 9.4 include a UK cinema voucher usable for tickets, food eaten in the cinema and merchandise, because all of those are standard rated, as well as perfume vouchers and download vouchers limited to electronically supplied services. A general department store gift card that can buy zero rated children’s clothes and standard rated electronics is an MPV, because the rate is not known until it is spent.

Some less obvious points from the same guidance:

• A voucher usable in more than one country cannot be an SPV. HMRC’s example is a children’s clothes voucher valid in UK shops and the Channel Islands, which are not part of the UK for VAT.
• If goods normally carry one rate but could be relieved in particular circumstances, such as disability relief or zero rated export sales, the voucher is not an SPV unless those uses are excluded in its terms.
• A voucher redeemable for goods sold under a margin scheme cannot be an SPV, because VAT is due on the margin rather than the value.

When is VAT due on a single purpose voucher?

Paragraph 3 treats the issue and every later transfer of a voucher as a supply of the underlying goods or services. For an SPV, that means VAT is due at each sale of the voucher, at the rate that applies to what it buys. Under paragraph 5, the later handover of goods or services in exchange for the voucher is not a supply at all, so no further VAT arises on redemption.

Where the business redeeming the voucher is not the one that issued it, paragraph 5(3) treats the redeemer as making a supply to the issuer. The redeemer accounts for VAT on that supply and should invoice the issuer, while the customer receives no VAT invoice for the part paid by voucher. If the customer pays something extra on top of the voucher, the redeemer can issue a VAT invoice for that extra amount.

HMRC’s distribution chain example in Notice 700/7 shows how this works. A spa sells a voucher for £10 of beauty treatment to a distributor for £8 and accounts for VAT on £8. The distributor sells it to a retailer for £9 and accounts for VAT on £9, recovering the spa’s VAT as input tax. The retailer sells it to the consumer for £10 and accounts for VAT on £10.

When is VAT due on a multi purpose voucher?

Paragraph 7 says the consideration for issuing or transferring an MPV is disregarded at every stage. No VAT is charged when it is sold, and distributors in the chain do not account for VAT on their margins on the voucher itself. Instead, paragraph 8 treats the provision of goods or services in exchange for the MPV as a supply when it is redeemed, and the redeemer accounts for VAT at the rate that applies to what the customer actually takes.

The value on redemption is the consideration paid at the most recent transfer for consideration, if the redeemer knows it; otherwise it is the face value stated on the voucher or in its terms. In both cases the amount is treated as VAT inclusive. Giving a voucher away does not reset the value to nil: in HMRC’s example, a £50 MPV bought for £49 and given to a friend is valued at £50, or £49 if the redeemer knows that price.

How does the same gift card work under each rule?

Illustration only. A customer buys a £60 card from each of two businesses.

Step	Single purpose (spa treatments, all standard rated, UK only)	Multi purpose (department store card)
Customer buys £60 card	VAT of £10 due now (£60 x 1/6)	No VAT; sale disregarded
Card spent on £60 of goods	No further VAT	VAT due on what is bought: £10 if all standard rated, nil if all zero rated
Card never used	No adjustment unless refunded	No VAT ever due

What happens if a voucher is never used?

For an SPV, Notice 700/7 paragraph 9.12 says no VAT adjustment can be made if the voucher is not used, or not used in full, unless a refund is made. The VAT was due on the sale and stays due. For an MPV there is nothing to adjust: the issue was disregarded and no taxable supply ever happened. The accounting side of unredeemed balances, known as breakage, is covered in accounting for gift vouchers and breakage.

Can you recover input tax on costs of issuing vouchers?

For SPVs, each business that sells the voucher makes a taxable supply and recovers related input tax under the normal rules. For MPVs, paragraph 7(2) means the issue or transfer is not itself a supply that gives a right to deduct. Notice 700/7 paragraph 9.6 explains that costs can still be recovered if the vouchers are part of a wider taxable activity. A retailer issuing its own MPVs attributes the VAT on those costs to its sales of goods. A marketing business that issues vouchers as part of promotional services can attribute the costs to those services.

What about vouchers given away or bundled with other sales?

Paragraph 11 is an anti avoidance rule. Where a voucher is handed over as part of a package and the total price would be the same, or not significantly different, without it, the voucher is treated as supplied for nothing. HMRC’s examples include a voucher given on purchases over a set amount and a phone boxed with a phone card. The seller cannot reduce the value of the main sale by allocating part of the price to the voucher.

A retailer giving away its own SPVs is likely to be treated as giving away the underlying goods or services, so the business gift rules apply. Free MPVs redeemed without further payment are likely to be treated as discount vouchers. Where an employer provides vouchers under salary sacrifice, Notice 700/7 says the salary given up is the consideration for the voucher. The income tax side for staff is covered in gift vouchers and cash gifts to staff.

What mistakes come up most often?

• Treating every gift card as an SPV. If the card can buy items at different rates, it is an MPV and VAT is due only on redemption.
• Accounting for VAT twice on an SPV, once on sale and again on redemption.
• Reducing output tax when an SPV expires unused, without making a refund.
• Applying the post 2019 rules to older vouchers. Schedule 10A still governs face value vouchers issued before 1 January 2019.
• Treating a money off coupon or an event ticket as a voucher. Both are specifically excluded by paragraph 1(5).
• Getting the time of supply wrong for an MPV by declaring VAT when cash is received rather than when the voucher is spent.

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Related Accountapedia entries

• What a valid VAT invoice must show
• How VAT works: output tax and input tax
• VAT on postage and delivery charges
• Credit notes, discounts and VAT
• Zero rated vs exempt supplies

Sources

• legislation.gov.uk: Act 1994 c. 23, schedule 10B
• legislation.gov.uk: Act 1994 c. 23, schedule 10A
• GOV.UK: Business promotions and vat notice 7007
• GOV.UK: Vat guide notice 700

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.