Clause 19 - Face-value vouchers
Finance Bill
8:55 am
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
Members of the Committee will recall that in the 2002 Budget we set out an important package of measures to tackle VAT avoidance, and we have made strides since then in reforming the VAT system to prevent abuse and revenue leakage.
As part of that package of measures we announced that, after consultation on the details, we would legislate at the earliest possible opportunity to stop revenue leaks resulting from loopholes in the VAT treatment of face-value vouchers. We do so now in clause 19. By face-value vouchers I mean vouchers, cards and the like that can be exchanged for goods and services, the most common examples of which are gift vouchers and telephone cards.
I can give the Committee a practical example of the problem. Under the old VAT rules, if the issuer of a voucher with a face value of £10 sold it to a retailer for £8, we would collect the VAT not on the £10 for which it was sold on to the customer but only on the £8 for which it was sold to the retailer. In effect, the retailer's mark-up of £2 was VAT-free. That loophole was also being used for avoidance purposes, because some businesses were selling face-value vouchers to associated companies at an artificially large discount. The vouchers were then sold on to customers at the full price, with the businesses having to account for VAT only on the original, small, discounted price.
As with other revenue leakage and avoidance, two concerns arise. First, the taxpayer has a right to expect us to collect all the VAT due on the purchase of goods and services; and secondly, businesses have the right to expect fair competition, instead of seeing other businesses gain an unfair advantage by artificially reducing their VAT bills. Therefore, we are legislating in clause 19 and schedule 1 to close that loophole.
Intermediate suppliers such as the retailer or the associated company in the examples that I have given will be required to account for VAT on the full amount for which they sell face-value vouchers on to their customers. Consumers will not have to pay more. A £10 voucher will still buy £10-worth of goods or services.
It may be helpful if I draw the Committee's attention to two specific aspects. First, the clause includes a provision to tackle the specific avoidance scheme whereby a voucher is provided alongside other
goods or services to reduce the taxable value of the sale. Secondly, I want to reassure the Committee that the VAT-free status of certain goods and services has not been altered by the changes. Postage stamps, for instance, are unaffected. We have also ensured that, if vouchers are exchanged for zero-rated goods such as books, the VAT liability of those vouchers may be adjusted accordingly.
The changes follow the original Budget 2002 announcement and the consultation with affected businesses that followed. In the technical operation we aim to ensure that the benefits of the changes are proportionate to the costs that they impose on the businesses. I believe that the changes are proportionate and further show our commitment to tackling revenue losses in the VAT system. I therefore commend the clause to the Committee.