group buying VAT - who pays

[henry1561]

With regard to group buying sites such as groupon, livingsocial etc, who actually pays for the VAT?

As a customer, when one buys a discounted voucher for £20 on something of a £100 value, one pays £20 and when redeeming, does not pay any more.

Therefore, if the merchant agreed to sell the product / service at a discounted rate of £20, and £10 goes to the group selling site, does the merchant pay the VAT on the £20 or on the amount actually earned; £10, or is the VAT owed to HMRC split between the merchant and the group selling site?

Or, is the voucher considered a gift certificate without VAT? Who is responsible for the VAT?

Hopefully someone knows the answer to this as seems to be a very complicated issue.

Many thanks in advance.

[Generix]

With regard to group buying sites such as groupon, livingsocial etc, who actually pays for the VAT?

As a customer, when one buys a discounted voucher for £20 on something of a £100 value, one pays £20 and when redeeming, does not pay any more.

Therefore, if the merchant agreed to sell the product / service at a discounted rate of £20, and £10 goes to the group selling site, does the merchant pay the VAT on the £20 or on the amount actually earned; £10, or is the VAT owed to HMRC split between the merchant and the group selling site?

Or, is the voucher considered a gift certificate without VAT? Who is responsible for the VAT?

Hopefully someone knows the answer to this as seems to be a very complicated issue.

Many thanks in advance.

I'm not really familiar with the sites you mentioned, and therefore can't understand from what you have written whether these are face value (retail or credit vouchers or other) or some type of redeemable coupon?

Can you explain the supply chain from start to end for a typical transaction, and then I can break down the VAT for you.

Cheers.

(also - post in the VAT section next time, I don't normally search all over the forums for VAT q's )

[henry1561]

Hi - thanks for your reply & sorry for the wrong location.

The process is such:

The group buying site has a member email list to whom it emails daily offers valid for a short time only, usually only 24 hours. They have negotiated these deals in advance with the merchant who is offering a huge discount to gain the new customers (a form of marketing for them even if the offer is a loss leader) eg. 'A spa treatment normally worth £100 available for £20'. The merchant and the group buying site usually split the sales 50/50 - so each receive £10.

The customer at the point of sale pays a total of £20 and receives a voucher which can be redeemed with the merchant for the specified treatment at the reduced value of the voucher.

I am wondering if the group selling site pay the merchant their share minus VAT
or
is the VAT due to HMRC split with each party paying half
or
is the group buying site not required to pay VAT as they are not fulfilling the service, but rather are a middle man selling a discounted gift voucher and the merchant gets lumbered with the VAT (and even lower share of the sales)?

What are the rules when selling a discounted voucher on behalf of another merchant with regard to gift cards / vouchers?

What about non-redemption as it is estimate 15% of these vouchers are never redeemed?

Your thoughts are much appreciated.

[Generix]

Hi - thanks for your reply & sorry for the wrong location.

The process is such:

The group buying site has a member email list to whom it emails daily offers valid for a short time only, usually only 24 hours. They have negotiated these deals in advance with the merchant who is offering a huge discount to gain the new customers (a form of marketing for them even if the offer is a loss leader) eg. 'A spa treatment normally worth £100 available for £20'. The merchant and the group buying site usually split the sales 50/50 - so each receive £10.

The customer at the point of sale pays a total of £20 and receives a voucher which can be redeemed with the merchant for the specified treatment at the reduced value of the voucher.

I am wondering if the group selling site pay the merchant their share minus VAT
or
is the VAT due to HMRC split with each party paying half
or
is the group buying site not required to pay VAT as they are not fulfilling the service, but rather are a middle man selling a discounted gift voucher and the merchant gets lumbered with the VAT (and even lower share of the sales)?

What are the rules when selling a discounted voucher on behalf of another merchant with regard to gift cards / vouchers?

What about non-redemption as it is estimate 15% of these vouchers are never redeemed?

Your thoughts are much appreciated.

These seem like they would fall into the definition of face value vouchers to me - moreover it would probably depend on the exact contractual nature between the merchant and the 'agent'.

I'll give you a brief overview and some examples (note the below is laymans terms rather than strict definitions - for that I'd have to refer to my trusty orange book and haven't really got time to quote verbatim today )

Someone should verify this as its been a while since I looked at vouchers

Retail vouchers - are issued by the retailer for redemption against their own products. (e.g. HMV gift voucher - usable only in HMV)

Credit vouchers - are issued by an agent which may be redeemed against a selection of merchants products. (e.g. bluewater gift voucher - usable in any shop within the bluewater shopping centre)

So in your scenario it would depend on whether the merchant is supplying the vouchers to the agent for onward supply, or whether the agent has an agreement to produce vouchers which can be redeemed at the merchants which the agent will reimburse partially or fully.

In any case; for Credit vouchers, the initial supply and all subsequent supplies are disregarded for VAT purposes. The time of supply when VAT becomes accountable is when the voucher is redeemed. So effectively in the case of non-redemption the cash is VAT free. In the case of redemption the VAT would be either the face value of the voucher or if it can be proved to HMRC that the voucher was sold at less than face value, then the consideration actually received by the merchant may be used.

For retail vouchers, the initial supply is disregarded for VAT purposes, however all subsequent supplies would be chargeable to VAT. E.g. the issue by the merchant to the agent would be disregarded, then the sale by the merchant to the customer would be chargeable to VAT (usually the vouchers face value would be VAT inclusive in the case of B2C sales), when the voucher was redeemed the original merchant would account for VAT at the appropriate rate based on the consideration they received from the agent in the first instance.

I couldn’t promise that these are defo face value vouchers, but if they were I’m gonna suggest they’re more likely credit vouchers.

Hope that is of some use?

Like I said before to understand the VAT throughout the supply chain you’d have to look carefully at the contracts between the agent and the merchant.

Apologies if this response is all over the place, I put it together in 3 goes between work

Please post again if anything is unclear, and I'll make time later in the week for a better response - and double check I'm right

[henry1561]

that is helpful, thank you. Rather confusion the entire VAT business!