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Ballooning Company Cash-Flow Takes Off

A hot air ballooning company will enjoy a substantial cash-flow advantage after it convinced the First-tier Tribunal that VAT is chargeable on its gift vouchers not when they are paid for but when they are redeemed, often several months later.

The company specialises in laying on scenic balloon rides for romantic couples and the adventurous. Much of its income is generated from gift vouchers issued over the Christmas period but which are generally not redeemed until weather conditions improved during the Spring and Summer months.

The company argued that the vouchers were ‘face-value vouchers’ within the meaning of Schedule 10A of the VAT Act 1994 and that VAT thus did not have to be accounted for until they were redeemed. HM Revenue and Customs (HMRC) countered that they were ‘single-purpose vouchers’ on which VAT was chargeable when they were issued and paid for.

HMRC pointed out that, as they were usually bought as gifts by loved ones, the value of the vouchers was not printed on their face. It was submitted that they did not principally represent a given sum of money but were in reality pre-payments for specific balloon rides.

However, in allowing the company’s appeal, the Tribunal noted that, although it might well be the case that vouchers were bought by donors with the object of funding a particular balloon ride, recipients were entitled to change their minds and tender vouchers for merchandise or different rides up to the cash value of the vouchers. In every sense, the vouchers precisely matched the attributes that the legislation contemplated for a ‘face-value voucher’.