Using Gift Vouchers To Capitalise On VAT Reduction

The pandemic stopped us all in our tracks. Lockdown forced hotels, pubs, and restaurants to close their doors and lose most of their income as a result. If this was you, you’ll be no stranger to the hardship of postponed or cancelled bookings and dried up sales. During this difficult time, gift vouchers became one of the few sources of income for businesses. And now businesses like yours are open again, there is a new benefit to selling vouchers.

Enter the Government’s temporary VAT reduction. Read on to find out how the reduction affects gift vouchers, and how you can use them to save even more money.

VAT Reduction unpacked

From the 15th July 2020 until the 12th January 2021, the VAT (value added tax) on accommodation, food and soft drinks has fallen from 20% to 5%. The intervention is expected to cost the Government £4.1 billion in tax, and is intended to safeguard jobs and boost one of the hardest hit sectors of the economy.

Unlike the Eat Out To Help Out scheme, the saving is not allocated to the customer. As a business, you are free to decide whether to reduce your prices (and pass the saving on to your customer), or keep the prices fixed to make more money from each sale.

The VAT reduction is significant. A hotel room that costs £100 per night would save £11.91 in tax. Supposing you have the capacity to fill 20 rooms a night from the 1st of October until the 12th of January, you have a maximum of 2,080 overnight stays, with a max income of £208,000 if they are all priced at £100. If you paid 20% VAT on these bookings, you would deduct £34,666.67. But if you pay 5%, this falls to £9,904.76 – saving you £24,761.91. Which is certainly worth having.

Which vouchers does it apply to?

• Food and non-alcoholic drinks vouchers such as Afternoon Tea, Cream Tea and Dinner (without alcohol).

• Holiday sleeping accommodation vouchers such as overnight stays (without alcohol).

How is VAT applied to Gift Vouchers?

VAT is paid on gift vouchers at the point of issue, not the point of redemption.

This means that if you sell a £200 voucher for an overnight stay to Person A in November 2020, and they redeem it in February 2021, you will pay 5% VAT. But if Person B books an £200 overnight stay booking in February 2021, you will pay 20% VAT.

Now is the time to encourage gift voucher sales— the more you can sell before the 12th of January, the more money you’ll save.

Sunny day gifting

Lockdown has given rise to a new trend, known as ‘sunny day gifting’.

What does this mean? People are still gifting— for birthdays, mother and father’s days, anniversaries, ‘thinking of you’ gifts for loved ones they can’t be with and treats for themselves. But rather than buying the product or service to enjoy there and then, many people are deferring the experience for a later date. A ‘sunny day’ in the future when the pandemic is over.

Sunny day gifting took off during lockdown, but it looks set to continue. Despite hotels and restaurants reopening, many people are still wary of going out. This trend will likely continue until there is a second wave or a successful vaccine. It is worth remembering that only one in four Brits believe that life will have returned to normal by Christmas, and the optimistic percentage drops week-by-week.

Pretty postal gift envelopes and boxes make the ideal sunny day gift. While all deliveries have excelled during lockdown, especially the giant corporations like Amazon, gift vouchers are a fantastic ethical option. Don’t forget to shout from the rooftops that not only do you sell vouchers but you are a local business whose experience gifts are never made in China!

What you can do

Firstly, you may choose to amend the VAT on your gift vouchers, if you are passing on the saving as an incentive to your customers. Our brand new gift voucher shop has the functionality to edit VAT built into it and we are currently upgrading all of our clients to the shop. Please contact us to request your upgrade. You can then update your VAT on individual vouchers, or ask our team to do so for you for a small fee.

VAT reduction only applies to some of your vouchers currently, but there is nothing stopping you from releasing vouchers which apply. Here are some ideas below:

• Two or Three Course Dinner (non-inclusive of drinks)
• Coffee and cake
• Breakfast or brunch
• Picnic hamper

The more gift vouchers you sell before the 12th of January, the more money you can save and put towards safeguarding your business and paying your staff.  Interested in selling gift vouchers?