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 at the desk 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. Both sides are recorded against the same payment, so nothing is counted twice.
• When it is spent at the desk 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.

Spending a voucher at the desk means redeeming it against a visit as account credit. See Issuing and redeeming gift vouchers.

Posted vouchers: the postage is different

If a recorded voucher payment includes postage, it is the voucher value plus the postage charge. Only the voucher value is stored value. The postage is not part of the voucher: it is a charge for posting it, so it is counted straight away as an ordinary standard-rated sale.

So a £50 voucher posted for £3 is one card payment of £53: £50 goes to stored value with no VAT, and £3 is standard-rated revenue on the day it is paid. An emailed voucher has no postage and works exactly as described above.

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 desk redemptions land in the medical or cosmetic figures at the treatment's own rate. Postage paid on posted vouchers is left out of stored value sold and shows in the standard-rated figures instead.

With the direct Xero connection enabled and a Gift voucher & credit liability account mapped, a voucher purchase posts to your gift voucher liability account with no VAT. If the buyer paid for a posted copy, the same purchase carries a separate Postage line on your retail sales account at the standard rate, and only the voucher's value goes to the liability. A desk redemption posts as a zero-total document that recognises the revenue (and any VAT) while releasing the liability. No manual journals are needed for these mapped documents.

Linked refunds reduce stored value sold in the refund period. For a voucher payment that included postage, a partial refund reduces the voucher liability only. A single refund of the full original payment also reverses its postage. The VAT report and direct Xero mapping follow the same rule.

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, and postage is still counted as a sale rather than voucher value, 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.