Every December, pubs, restaurants and cafés across Hampshire sell gift vouchers by the hundred. It’s lovely money: cash in the till before you’ve cooked a thing, and a customer who has already decided to come back. What almost nobody tells you is that for VAT there are two different kinds of voucher, most hospitality owners have only heard of one, and which one you’re selling decides when the VAT is due, whether it’s due at all on the ones nobody spends, and what a busy December does to your accounts.
I work with hospitality businesses across Winchester and the rest of the county, and voucher VAT comes up every autumn. Here’s the whole thing in plain English, before you send this year’s batch to the printer.
Two types of voucher for VAT
Since 2019 the rules split every voucher into one of two boxes. The split doesn’t depend on what you call it, what it looks like or how you sell it. It depends on one question: at the moment you sell the voucher, is the VAT rate of whatever it will be spent on already known?
Single-purpose vouchers
If everything the voucher can be spent on carries the same VAT rate, it’s a single-purpose voucher. A restaurant voucher redeemable against meals and drinks eaten at the table is the classic example, because everything consumed on your premises is standard-rated. The VAT is known on day one, so VAT is due when you sell the voucher, on the return that covers the date of sale. When the customer later comes in and spends it, there’s no VAT on the redemption itself, because it has already been accounted for.
Multi-purpose vouchers
If the voucher could be spent on things at different VAT rates, it’s a multi-purpose voucher. A café voucher that could go on a zero-rated bag of beans or an iced latte to take away, as well as a standard-rated flat white at the table, is the everyday version. Nobody can know the VAT until the customer chooses, so the sale of the voucher is ignored for VAT and VAT is due when it’s spent, at whatever rate applies to what they actually buy.
| Single-purpose | Multi-purpose | |
|---|---|---|
| What it can buy | Things at one VAT rate only | Things at different VAT rates |
| Hospitality example | Dine-in meals and drinks | Anything in a café that also sells cold takeaway |
| When VAT is due | When you sell the voucher | When the voucher is spent |
| VAT on the sale of the voucher | Yes, at 20% on what the customer pays | None |
| If it’s never spent | The VAT is paid and stays paid | No VAT at all |
Which one are you selling?
This is the part owners get wrong, and it’s wrong in both directions. You can’t just decide which type you sell, and you can’t make a voucher single-purpose by printing “single-purpose” on it. It’s set by what the voucher can genuinely be spent on under its own terms. For a hospitality business the test comes down to the VAT rates of your menu:
- Everything eaten or drunk on the premises is standard-rated. Food, coffee, soft drinks, alcohol, the lot.
- Hot takeaway is standard-rated too. A hot coffee to go, a hot sausage roll, a takeaway curry.
- Cold takeaway food is mostly zero-rated. A loaf, a cake to take home, a bag of coffee beans, a sandwich from the chiller. (Confectionery, crisps, ice cream and most cold soft drinks are standard-rated exceptions.)
- Cold tea, coffee and milk-based drinks to take away are zero-rated. The iced latte to go is the one that surprises people.
Put those together and the answer usually falls out on its own:
- A pure dine-in restaurant sells single-purpose vouchers
Whatever the voucher is called, if it can only be spent on food and drink eaten at your tables, every possible use is standard-rated. VAT is due when you sell it.
- A café with a deli counter or takeaway probably sells multi-purpose vouchers
If the voucher could be spent on a cold sandwich, a cake in a box or a bag of beans, and your terms don’t stop that, you may have been selling multi-purpose vouchers without realising it, and possibly paying VAT on them that wasn’t due yet.
- A pub depends on what it lets the voucher buy
Drinks and meals at the bar are all standard-rated. Add a shop counter selling bottled beer to take home (standard-rated) and it’s still single-purpose. Add cold takeaway food and it tips into multi-purpose.
You do have a choice, but it’s made in the terms, not the label. If you want the certainty of a single-purpose voucher, restrict it to dine-in food and drink and say so on the voucher. If you’d rather the VAT waited until the voucher is spent, let it be used on anything you sell. Either is fine. What isn’t fine is treating it one way while the terms say the other, so assess your offering first and don’t label and hope.
What it does to your cash in December
Say you sell £5,000 of £50 vouchers in the run-up to Christmas. Here’s what the two types do to the VAT return that covers December:
| £5,000 of vouchers sold in December | Single-purpose | Multi-purpose |
|---|---|---|
| VAT due on the December return | £833.33 | £0.00 |
| VAT due when vouchers are spent in January | £0.00 | At the rate of what’s bought |
| VAT on the ones never spent | £833.33 stays paid | £0.00 |
| Cash left from the sale, after VAT | £4,166.67 | £5,000.00 (for now) |
Illustrative figures at 20%. On a single £50 voucher the VAT is £8.33, which is the number in the title.
Single-purpose vouchers front-load your VAT into the busiest quarter of the year, at exactly the point your stock, staffing and energy bills are highest. That’s not a reason to avoid them, but it is a reason to know it’s coming and to put the £833 aside rather than treating the whole £5,000 as spendable.
If you sell vouchers at a discount
A £50 voucher sold for £45 in a promotion carries VAT on the £45, not the £50. For a single-purpose voucher that’s the VAT on the sale. For a multi-purpose voucher, when it’s redeemed the VAT is worked out on the price the customer actually paid for it where you know that figure, and you will, because you sold it, and only falls back on face value where the price isn’t known.
The ones that never come back
A proportion of gift vouchers are never used. They go in a drawer, they expire, the recipient moves away. That’s true of every business that sells them, and the two voucher types treat it completely differently.
On a single-purpose voucher the VAT is paid and stays paid. HMRC’s guidance is explicit that no VAT adjustment can be made if the voucher isn’t used, or isn’t used for its full value, unless you refund the customer. You accounted for the VAT because a taxable supply was known at the point of sale, and the customer choosing not to turn up doesn’t unwind that.
On a multi-purpose voucher, no redemption means no VAT at all, because the sale of the voucher was ignored in the first place and nothing was ever handed over. The whole £50 is yours when the voucher expires.
Across a season’s worth of vouchers that difference is real money, and it’s one of the reasons a café that genuinely sells across both rates shouldn’t be paying VAT on issue out of caution.
It’s not income yet
This is the point that has nothing to do with VAT and catches even well-run businesses out. When you take £50 for a voucher, you haven’t made a sale. You’ve taken money in return for a promise to feed someone later. In your accounts that’s a liability, usually called deferred income, and it sits there until the voucher is redeemed or expires. Only then does it become revenue.
Book December voucher sales straight to sales and two things go wrong. December looks better than it really was, because it’s carrying meals you haven’t served yet. Then January, when the vouchers come back through the door, looks worse than it really was, because you’re cooking for customers whose money you already counted. Anyone using those figures to make decisions, whether that’s you, your bank or a buyer, is looking at the wrong picture.
The fix is a ten-minute job in Xero or whatever you use: a liability account for vouchers outstanding, voucher sales coded to it, and each redemption moved from there to sales at the point the customer eats. When a voucher expires unused, the balance comes out of the liability and into income. For a single-purpose voucher that liability sits net of the VAT you’ve already paid; for a multi-purpose voucher it’s the full amount, and there’s no VAT to take off when it expires. If the gap between what your accounts say and what’s in the bank is a familiar feeling, this is why they never match.
Before the December rush
- Decide what the voucher can buy, and write it on the voucher. Dine-in only, or anything you sell. That single line decides the VAT treatment, so make it deliberate.
- Put a clear expiry date on every voucher. Twelve months is common and easy to explain. Vague or hidden expiry terms are the kind of thing consumer law frowns on, and an open-ended voucher is a liability that never clears.
- Set the tax rate on voucher sales correctly. Single-purpose: 20% VAT on the sale. Multi-purpose: no VAT on the sale, VAT on redemption. Get the product or till button set up once and it’s right every time.
- Record voucher sales as a liability, not revenue. Then move each one to sales when it’s spent.
- Keep a running list of what’s outstanding. Voucher numbers, dates sold, dates used. At year-end your accountant needs the unredeemed balance, and at the till your staff need to know a voucher is genuine.
- Treat a top-up as a normal sale. If someone spends £70 against a £50 voucher, the extra £20 is an ordinary sale with VAT on it in the usual way.
The mistakes I see most often
- Paying VAT on every voucher “to be safe”. If you sell across both rates and your terms allow it, you’re paying VAT before it’s due and paying it on vouchers that will never be used.
- Not paying VAT on any vouchers because “it’s just a gift card”. A dine-in restaurant voucher is single-purpose, and the VAT was due on the day it was sold.
- Booking voucher sales as income. December flattered, January punished, and a year-end liability nobody has quantified.
- No expiry date. A drawer full of vouchers from three Christmases ago that are all still technically valid.
- Terms that don’t match reality. The voucher says “dine-in only” but staff take it against a takeaway order every week. What actually happens at the till is what HMRC will look at.
Frequently asked questions
Is VAT due when I sell a gift voucher?
It depends which type it is. If everything the voucher can buy is at one VAT rate, such as dine-in meals and drinks, it’s a single-purpose voucher and VAT is due when you sell it. If it could be spent on things at different rates, such as a café that also sells cold takeaway, it’s multi-purpose and VAT is due only when it’s spent.
What happens to the VAT if a voucher is never used?
On a single-purpose voucher the VAT you paid on the sale stays paid; HMRC allows no adjustment for unused vouchers unless you refund the customer. On a multi-purpose voucher nothing is due at all, because the sale was disregarded and no goods or services were ever supplied.
Can I choose which type of voucher I sell?
Not by labelling it. The type is fixed by what the voucher can genuinely be spent on under its terms. You can shape that by restricting a voucher to dine-in food and drink (single-purpose) or letting it be used on anything you sell (multi-purpose), but the terms have to match how the voucher is actually accepted at the till.
Are gift voucher sales income in my accounts?
Not until they’re redeemed. Money taken for a voucher is a liability, usually called deferred income, until the customer spends it or it expires. Booking it straight to sales overstates the month you sold it and understates the month it’s used.
What if I sell a £50 voucher for £45?
VAT follows what the customer actually paid. On a single-purpose voucher the VAT on the sale is worked out on £45. On a multi-purpose voucher the VAT at redemption is based on the £45 where the price paid is known to the business accepting the voucher, and only on face value where it isn’t.
Do I need an expiry date on gift vouchers?
There’s no fixed legal period, but a clear, prominent expiry date is good practice for both accounting and consumer law reasons. Twelve months is common. Without one, the liability in your accounts never clears and old vouchers can surface years later.
Getting it right
None of this needs to be complicated. Decide what the voucher can buy, write it down, set the VAT rate to match, and account for the money as a liability until the customer turns up. Do that before the December rush and the January VAT return holds no surprises.
If you run a pub, restaurant or café in Hampshire and you’re not sure which type you’re selling, or you suspect you’ve been paying VAT on vouchers that didn’t need it, that’s a quick check rather than a project.
Vouchers sorted before the December rush
We work with pubs, restaurants and cafés across Winchester and Hampshire. As your ICAEW Chartered Accountant, here is how I can help:
- Voucher check — confirm whether yours are single- or multi-purpose from your menu and terms, and fix the wording if it needs it
- VAT set-up — the right tax rate on voucher sales in Xero or your till, so the return is right every quarter
- Deferred income — a voucher liability account, redemptions tracked, and a clean unredeemed balance at year-end
- Management accounts — December and January that show what actually happened, not what the till says
- Hospitality VAT generally — takeaway versus eat-in, hot versus cold, and everything else that catches venues out
This article is general guidance for UK hospitality businesses, not advice. The VAT treatment of a voucher depends on its own terms and on what it can actually be spent on, and rates and rules change. Please check the current HMRC guidance and speak to us about your own position before acting on anything here.
