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I run a website where customers can buy 'Tip Packs' and then spend these Tips on the site.

The packs are a straight conversion - £10 = £10 worth of Tips to spend on the site.

My question is, do I need to pay VAT on this purchase or do I just pay VAT on the products they buy with the Tips?

Thank you

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  • Is this any different to a gift card? With gift cards, there's no VAT when buying the card, and VAT is charged at the normal rate when it's spent.
    – Simon B
    Nov 5, 2021 at 15:00
  • Can the user get his money back (in £) e.g. when he cancels his account on your site?
    – Solarflare
    Nov 5, 2021 at 15:03

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This is a complex area of tax law.

This reference suggests that: enter image description here

I would suggest that this does not extend to areas where the customer purchases a voucher as such - it artificially reduces the price of the goods thereby reducing the collection of Value Added Tax due to HMRC rather than would be the case in the event of a price reduction or sale.

In my opinion, these electronic tokens generate a VAT point at the time of purchase by a customer and should be accounted for as tax collected on your VAT return. That will account for the reduced sale price (and thus reduced VAT collected) of the goods for which the voucher is ultimately exchanged.

The final arbiter (as always) is HMRC who should be consulted - I would say, in writing, just to be sure that any control visit later does not lead to a misinterpretion of your VAT records and you can be assured of the position.

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  • Thank you for that, I understand what you're saying, but wouldn't this be more applicable to my situation - "Face value vouchers that can be used for more than one type of good or service (multi-purpose) - No VAT due, if sold at or below their monetary value" The users buy the Tips, but they can be used for multiple purposes on the site, such as, buying videos, profile customisation etc
    – Sean Darren Dawn
    Nov 4, 2021 at 10:42
  • No, I can't see that applies - the "how to charge" comment suggests "No VAT due, if sold at or below their monetary value" but you are selling the voucher at it's face value. There is a grey area with the next condition down "Face value vouchers that can only be used for one type of good or service (single-purpose)" where VAT is due. Where there is uncertainness at the time of purchase (the customer has not yet made a choice against goods to apply the voucher on), HMRC would more likely rule on the latter condition to err on the side of safety.
    – graham
    Nov 4, 2021 at 10:55
  • Thinking outside the box as it were... could you perhaps combine the 2 conditions by charging a VAT inclusive voucher (ie £8.33 + VAT = £10) in that a £10 voucher is being sold at less that it's face value (ie a £10 voucher costs £8.33) effectively a discount? It would need running past HMRC of course to ensure compliance with the rules.
    – graham
    Nov 4, 2021 at 11:27

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