Vouchers VAT Treatment
Two Types of Vouchers
1. Face-Value Vouchers (Gift Cards)
A face-value voucher is a voucher where the consideration paid equals the face value (the amount the voucher can be redeemed for). Examples:
- Gift cards (e.g., AED 100 gift card sold for AED 100)
- Store credit
- Prepaid cards
VAT treatment: The sale of a face-value voucher is not a supply for VAT purposes. VAT applies when the voucher is redeemed for goods or services.
This prevents double taxation: if VAT were charged on the gift card sale AND on the goods purchased with the gift card, the same transaction would be taxed twice.
2. Other Vouchers (Discount Vouchers)
Other vouchers (e.g., discount coupons, promotional codes) are treated as a discount on the underlying supply.
VAT treatment: When the voucher is used, VAT is calculated on the discounted price (the amount actually paid after the discount).
Worked Example — Face-Value Voucher
A customer buys a AED 100 gift card from a store. No VAT is charged on the gift card purchase. The customer later uses the gift card to buy AED 100 of goods (standard-rated at 5%). The store charges AED 100 (including AED 4.76 VAT) on the goods. The gift card is simply a payment method.
Worked Example — Discount Voucher
A customer has a "20% off" coupon. They buy AED 100 of goods. The discounted price is AED 80. VAT is calculated on AED 80: 5% × AED 80 = AED 4 VAT. Total payable: AED 84.
Mixed Vouchers
Some vouchers combine a face-value element with a discount (e.g., "Buy a AED 100 gift card for AED 80"). These require careful analysis:
- The face-value component (AED 100) is the voucher value.
- The discount (AED 20) may be treated as a discount on the underlying supply.
Accounting Treatment
- Face-value vouchers sold: Record as a liability (unearned revenue), not as revenue.
- Vouchers redeemed: Recognize revenue and account for VAT at that point.
- Vouchers expired: For unredeemed vouchers, revenue may be recognized after the expiry period, with no VAT (no supply occurred).