I have recently been able to reopen my small hotel and I am selling face value gift vouchers which can be redeemed against room reservations and/or in the dining room and bar. I have previously charged VAT at the standard rate for all supplies. How does the temporary VAT rate affect my business?
A new temporary reduced rate of 5% applies, from 15 July 2020, to sleeping accommodation in hotels and similar establishments, on-premises catering services, hot takeaway food and drink and admissions to certain attractions. This rate can be applied until 12 January 2021
You can charge VAT at the reduced rate on room reservations and on-site dining until 12 January 2021, but the supply of alcoholic drinks remains at the standard 20% rate.
The changes affect the accounting treatment for VAT when issuing face value vouchers. There are two main types, as follows:
- Single purpose face value vouchers (SPFVV). Where at the time of issue, the goods or services have a single VAT liability and the place of supply is known.
- Multi purpose face value vouchers (MPFVV). These are vouchers which do not fall within the definition of a SPFVV.
For vouchers issued and/or redeemable whilst the temporary reduced-rate is in place, the treatment will change from that of a SPFVV to a MPFVV.
A voucher issued up to 12 January 2021 will be a MPFVV, because the liability of the underlying goods or services is not known and spans across two different VAT rates. You will need to account for any VAT on redemption for this particular type of voucher, instead of when it is issued.
Gift vouchers issued after 12 January 2021 will return to being SPFVV’s, as all supplies will be subject to a single rate of VAT at the standard rate and VAT should be accounted for on issue not redemption.
HMRC Brief 10/2020 provides further details on the temporary rate change.
Further guidance on vouchers can be found in VAT Notice 700/7, at section 9.