How to reduce vat surprises when selling seasonal vouchers and gift cards

Selling vouchers and gift cards feels like a simple way to boost cashflow before the festive rush, but VAT can turn that simplicity into a nasty surprise. Over the years I’ve seen small retailers and hospitality clients get caught out by the rules — and it’s usually because vouchers weren’t classified correctly, accounting systems didn’t separate voucher income, or teams weren’t clear about timing of VAT. Below I set out practical, UK-focused steps I use with clients to reduce VAT surprises and keep bookkeeping tidy.

Understand the VAT principle: timing depends on the voucher type

The key thing to get right is whether your voucher is treated as a single-purpose voucher (SPV) or a multi-purpose voucher (MPV). This determines when VAT is due.

• Single-purpose voucher (SPV) — VAT is due when you sell the voucher. SPVs are those where the VAT rate and identity of the underlying supply are known at the point of sale. Example: a voucher explicitly for a spa treatment that is standard-rated or for a product that is zero-rated.
• Multi-purpose voucher (MPV) — VAT is due when the voucher is redeemed. MPVs leave VAT until you know what the customer spends the voucher on (and therefore which VAT rate applies).

Get this classification correct first — it’s the foundation for VAT accounting, VAT returns and your internal controls.

Practical steps to prevent VAT surprises

Here are the controls I ask clients to put in place before they run a seasonal voucher promotion.

• Decide and document voucher types — write down whether each voucher product is an SPV or MPV and why. If the voucher names a specific good or service, treat it as an SPV. If it can be spent on multiple types of goods/services with different VAT treatment, treat it as an MPV.
• Use separate nominal codes or tracking categories — record voucher sales in a separate ledger code (e.g. “Voucher sales – SPV” and “Voucher sales – MPV (deferred VAT)”). This makes VAT reporting and reconciliation straightforward and prevents sales from being recorded as normal income by mistake.
• Set up rules in your accounting software — Xero, QuickBooks and Sage let you create tracking categories, product codes and default VAT treatment. Create a product/service for each voucher type and assign the correct VAT handling.
• Train frontline staff and customer service — ensure till staff and online teams know how to process voucher sales and redemptions. Mistakes often happen at the point of redemption (e.g. failing to charge VAT at the right rate).
• Agree responsibilities for third-party platforms — if you sell vouchers via an aggregator (e.g. gift voucher marketplaces, ResDiary, OpenTable vouchers or retail gift card providers), confirm who is considered the supplier for VAT — you or the platform — and get that in writing. Commission splits and platforms can change the VAT point.

Accounting entries I use (simple examples)

Below are sample journal treatments I use for small businesses. Adjust for your chart of accounts and tax codes.

Note: for MPVs, VAT is only recognised on redemption. For SPVs you charge VAT at point of sale and report it on the VAT return covering that tax period.

Common problem areas (and how to fix them)

Here are the frequent mistakes I see and the quick fixes I advise.

• Mistake: recording voucher sales as normal sales — fix: create separate product codes and reconcile gift card balances monthly so voucher sales aren’t included in VAT-exempt or zero-rated turnover by accident.
• Mistake: charging wrong VAT rate at redemption — fix: set up redemption processes that prompt the team to select the correct underlying product code (and VAT code) in the EPOS or ecommerce system.
• Mistake: ignoring unredeemed voucher balances — fix: monitor outstanding voucher liabilities. If vouchers expire, have a documented policy (and consider tax implications before recognising breakage as income).
• Mistake: third parties muddle the supplier role — fix: check contracts and ask the platform whether they report VAT on your behalf. If they are the supplier, you should receive a VAT invoice for platform fees rather than misreporting sales.

How to handle expiries and unredeemed balances

Unredeemed vouchers can create accounting headaches. From a VAT perspective, if you sold an MPV then VAT has not been charged — there’s nothing to reclaim or account for until redemption. For SPVs, VAT was already dealt with at sale.

From an income recognition perspective, many clients treat unredeemed voucher amounts as liabilities until expiry. If you choose to recognise breakage (income from expired vouchers), document your policy and ensure it’s consistent and supported by data. For tax and VAT purposes, treat any recognition of income separately from previous VAT treatments — consult your advisor before assuming expired vouchers are straightforward profit.

Reporting and controls I recommend before the peak season

• Run a pre-season VAT review: list voucher products, confirm SPV vs MPV, check tax codes in accounting software.
• Reconcile outstanding voucher liabilities weekly during peak months.
• Automate reporting: create a simple dashboard showing sold vouchers, redeemed vouchers and outstanding balances.
• Document standard operating procedures for sales, redemptions, refunds and expiries so temporary staff can follow them accurately.

Getting voucher VAT right is mostly about classification, clear accounting, and consistent processes at sale and redemption. If you want, I can review your voucher product list and suggest how to map each one into your accounting system — that short review often saves a lot of time (and VAT surprises) at year-end.