Gift vouchers and VAT (why no VAT is charged when a voucher is sold)

Gift vouchers are the one bit of clinic money that regularly gets accounted for wrongly, so this article explains exactly what AesthetiClinic does with them and why. It is written for you and your accountant; feel free to send them the link.

The rule, in plain words

Since January 2019, UK VAT law splits vouchers into two kinds:

• A single-purpose voucher can only ever buy things with one VAT treatment, so the VAT is known on day one and is due when the voucher is sold.
• A multi-purpose voucher can be spent on things with different VAT treatments, so nobody can know the right VAT until it is spent. VAT is due when the voucher is redeemed, at the rate of whatever it is actually spent on. No VAT arises at the point of sale.

A typical aesthetics clinic makes both kinds of supply: VAT-exempt medical care and standard-rated cosmetic treatments. A general gift voucher redeemable against your treatment menu is therefore a multi-purpose voucher, and that is how AesthetiClinic treats it.

What that means in practice

Take a £50 voucher:

• When it is bought: no VAT. The £50 is not revenue yet either; it is money you are holding against a future treatment, so it sits in stored value (a liability, in bookkeeping terms). This is why voucher sales appear in their own section of the VAT split report rather than in your gross figures.
• When it is spent on a cosmetic treatment: the redemption is the sale. £50 of standard-rated revenue is recognised, which includes £8.33 of VAT, and the stored value is released. This all happens in the same record, so nothing is counted twice.
• When it is spent on exempt medical care: the redemption is an exempt sale. No VAT ever arises on that £50, at either end.
• If it is never spent: no supply ever happened, so no VAT is due. What to do with long-expired balances is a decision for your accountant.

The mistake this avoids

The common error is charging VAT on the day the voucher is sold. Do that and one of two things goes wrong: the voucher is spent on an exempt treatment and you have paid HMRC VAT that was never due, or it is never redeemed and you have paid VAT on a sale that never happened. Either way the clinic is out of pocket, and unwinding it later means correcting a past VAT return.

What your accountant sees

The VAT split report shows stored value sold and redeemed side by side, and the redemptions land in the medical or cosmetic figures at the treatment's own rate. With the direct Xero connection, a voucher purchase posts to your gift voucher liability account with no VAT, and a redemption posts as a zero-total document that recognises the revenue (and any VAT) while releasing the liability, so the liability account's balance is always exactly the outstanding voucher value. No manual journals.

Caveats

• If you deliberately restrict a voucher so it can only buy standard-rated treatments, it becomes a single-purpose voucher and VAT is due when it is sold. Speak to your accountant before selling restricted vouchers.
• Not VAT-registered? None of this affects you; vouchers still sit in stored value until spent, which keeps your revenue figures honest.
• This article describes how AesthetiClinic records vouchers; it is not tax advice. Your accountant has the final word on your VAT treatment.