Gift vouchers are brilliant for cash flow. Someone pays you in November for a treatment they will book in February, and the money sits in your account in the meantime. The catch is that the VAT and the income tax do not always fall when the cash does, and getting the timing wrong is one of the easiest ways for a salon to overpay or underpay HMRC.
The single most important question is this. When you sell a gift voucher, do you account for the VAT straight away, or only when the client comes in and redeems it?
The answer turns on one distinction in the VAT rules: whether your voucher is a single-purpose voucher or a multi-purpose voucher. If everything your salon sells is standard-rated and supplied in the UK, even the everyday "spend this on whatever you like" voucher is a single-purpose voucher, so the VAT is due when you sell it, not when the client comes in.
This guide is for salon, barber and clinic owners who sell gift vouchers and want to know when the VAT and the tax actually bite. If you would rather hand the whole thing over, that is what we do for hairdressers and beauty businesses.
Are salon gift vouchers single-purpose or multi-purpose for VAT?
It depends on what the voucher can be spent on. If, at the moment you sell it, you already know both where the supply happens and the VAT rate that will apply, it is a single-purpose voucher and you account for VAT on sale. That holds even if the client picks the treatment later, as long as everything the voucher can buy carries the same rate. If the voucher can be spent on things at different VAT rates, or in more than one country, it is a multi-purpose voucher and you account for VAT only on redemption. For a salon where every treatment and product is standard-rated, a "money off anything" voucher is single-purpose.
What changed for voucher VAT in 2019?
The rules you need to follow have applied to vouchers issued on or after 1 January 2019. Before that, the UK used a system of "face value vouchers" split into retailer, credit and other categories. That framework was replaced.
Since 1 January 2019, there are only two types of voucher in the VAT rules: single-purpose vouchers and multi-purpose vouchers. Every gift voucher you sell falls into one of these two boxes, and which box it sits in decides when you account for the VAT. HMRC sets out the current treatment in VAT Notice 700/7.
This only matters if you are VAT-registered. You must register once your taxable turnover passes the VAT registration threshold of £90,000 in any rolling 12-month period (gov.uk). Plenty of independent salons sit below that and do not charge VAT at all, in which case the voucher timing question does not arise for you yet. If you are near the line, our VAT services team can keep an eye on it.
Single-purpose vouchers: VAT on sale
A single-purpose voucher is one where, at the time it is issued, two things are already known: the place of supply, and the single VAT rate (the "single liability to VAT") that will apply to whatever the voucher buys.
A voucher that can only be redeemed for one clearly defined service, such as "one cut and blow-dry", is the obvious single-purpose voucher. But the test is the VAT rate and the place of supply, not the number of services. A voucher that can be spent on any of your treatments and products is single-purpose too, if they are all standard-rated and supplied at your UK salon, because the VAT position is fixed the moment you sell it.
For a single-purpose voucher, VAT is due when the voucher is issued and again on any subsequent transfer for consideration. It is not due when the client actually comes in and redeems it, because you have already accounted for it. The standard VAT rate is 20%, so for a single-rated salon service the VAT is built into the sale price at the point of sale.
The practical downside is that the VAT lands in the quarter you sell the voucher, even though the work, and often most of the cash benefit, comes later.
Multi-purpose vouchers: VAT on redemption
A multi-purpose voucher is, simply, any voucher that is not a single-purpose voucher. If at the point of sale you cannot pin down a single VAT rate for what the voucher will buy, it is multi-purpose.
For a multi-purpose voucher, the consideration for issuing it and for any later transfer is disregarded for VAT. In plain terms, you do not account for VAT when you sell it. VAT becomes due only when the voucher is redeemed for goods or services.
When it is redeemed, the value you account for VAT on is the amount charged for the most recent transfer of the voucher where the redeemer knows it, or, where that is not known, the face value of the voucher. So a £50 multi-purpose voucher redeemed against standard-rated services means you account for VAT on that £50 at the point of redemption, not when you first sold it.
This is usually the better outcome for a salon's cash flow, because the VAT falls in the same quarter as the service, not months earlier when you took the money.
Which type is a typical salon voucher?
Here is where most salons land in practice.
The core services, cuts, colour, treatments, nails, are standard-rated at 20%. So are the retail products most salons sell, such as shampoo, styling products and skincare. Not knowing which of them the client will choose does not matter. What matters is whether everything the voucher can buy carries the same VAT rate and is supplied in the UK. HMRC's own example in VAT Notice 700/7 (paragraph 9.4.1) is a UK cinema voucher that can be spent on a film ticket, food or merchandise: all standard-rated, so it is a single-purpose voucher.
That is why the everyday "£50 to spend on anything in the salon" gift card is, for a salon where everything is standard-rated, a single-purpose voucher. You account for VAT when you sell it. It becomes multi-purpose if it can also be spent on something at a different VAT rate, or at a branch outside the UK (for VAT, the Channel Islands are not part of the UK).
| Voucher type | What it buys | When VAT is due |
|---|---|---|
| Single-purpose | Anything at one known VAT rate, supplied in the UK (for example, "one cut and blow-dry", or "£50 to spend on anything" where every treatment and product is standard-rated) | When the voucher is sold (and on any transfer) |
| Multi-purpose | Supplies at more than one VAT rate, or redeemable outside the UK | When the voucher is redeemed |
The label you put on the voucher matters less than what it can actually be spent on. A voucher marketed as "one signature facial" but redeemable in practice against anything is judged on everything it can buy, not on the wording. Look at the redemption reality, not the marketing.
If you genuinely are not sure which category your vouchers fall into, that is worth a short conversation before your next VAT return, because the two treatments are not interchangeable.
When does a gift voucher count as income for tax?
VAT timing and income tax (or Corporation Tax) timing are two separate questions, and salons often blur them.
Your taxable trading profit is worked out in line with generally accepted accounting practice, the accruals basis, under section 25 of the Income Tax (Trading and Other Income) Act 2005 for sole traders and partnerships, and section 46 of the Corporation Tax Act 2009 for limited companies. HMRC confirms this approach in its Business Income Manual.
Under that accounting treatment, selling a gift voucher is not the same as earning the income. When a client buys a voucher, you have taken cash but you have not yet done the work, so the proceeds sit on your balance sheet as deferred income (a liability), not as turnover. The income is recognised in your profit and loss account when the voucher is redeemed and you actually provide the service. That is the point it feeds into your taxable profit.
So the income tax or Corporation Tax on a voucher crystallises on redemption, not on sale, even where the VAT on a single-purpose voucher was due when you sold it.
Two caveats. First, if you use the cash basis as a small sole trader, the timing can differ, because the cash basis taxes money when it is received. Second, this is the accounts treatment, so it depends on your bookkeeping recording deferred income correctly. If your software just books every voucher sale straight to sales, your profit, and your tax, can be overstated in the year of sale. Clean bookkeeping is what keeps this right.
What about unredeemed vouchers?
Vouchers expire. Some are simply never used. The treatment of that "breakage" depends on the voucher type.
For a single-purpose voucher, you have already accounted for the VAT at sale, and the rules do not give you a route to claw that VAT back if the voucher is never redeemed. The VAT stays paid.
For a multi-purpose voucher, no VAT was ever accounted for on the sale, and none becomes due if it is never redeemed, because the trigger is redemption and redemption never happens.
On the income side, when a voucher lapses unredeemed and you are no longer obliged to provide anything, the deferred income you were holding is released to your profit and loss account. At that point it becomes taxable trading income. So unredeemed multi-purpose voucher money does get taxed eventually, when you recognise the breakage in your accounts, even though no VAT arises on it. Getting the timing of that release right is a judgement call worth checking with your accountant.
Illustrative example: a salon's Christmas vouchers
Illustrative example. Imagine Leyla runs a VAT-registered hair and beauty salon as a limited company. Everything she sells, treatments and retail products alike, is standard-rated, and she has one salon, in the UK. In December 2026 she sells 40 gift vouchers at £50 each, all "spend on anything in the salon" cards, so they are single-purpose vouchers. That is £2,000 of voucher sales.
In her December quarter, the VAT is due straight away. The £2,000 is VAT-inclusive, so the output VAT is £2,000 x 20 / 120 = £333.33, and it goes on the VAT return for the quarter in which she sold the cards, even though no client has been in yet.
By March 2027, clients have redeemed 30 of the vouchers (£1,500). No further VAT is due when they do, because the £250 of VAT on those 30 cards (£1,500 x 20 / 120) was already paid in December. The net service income is £1,250.
On the tax side, only the £1,250 net redeemed income is recognised as turnover and feeds her taxable profit for the period. The remaining 10 vouchers (£500, or £416.67 net of the VAT already paid) are still unredeemed, so they stay as deferred income on her balance sheet and are not yet taxed.
If, a year later, 4 of those vouchers (£200) have expired unredeemed and she is no longer obliged to honour them, she releases the £166.67 net breakage to her profit and loss account and it becomes taxable trading income then. The £33.33 of VAT she paid on those 4 cards in December stays paid: no VAT adjustment is allowed for a single-purpose voucher that is never used, unless she gives a refund.
If Leyla also sold something at a different VAT rate that the cards could buy, they would be multi-purpose vouchers instead. Then no VAT would be due in December, the £250 on the 30 redeemed cards would fall due in the quarter they were redeemed, and no VAT would arise on the 4 that lapsed.
These figures are illustrative. Your own position depends on your voucher terms, your VAT registration status and how your bookkeeping records deferred income.
Want to be sure your salon is accounting for voucher VAT and income at the right time? Book a free call with a Zmartly accountant and we will check how your vouchers are being treated.
Frequently asked questions
Do I charge VAT when I sell a salon gift voucher?
It depends on the voucher type. If everything the voucher can buy is at one VAT rate and supplied in the UK, it is a single-purpose voucher and you account for VAT when you sell it. That includes a "spend on anything" voucher at a salon where every treatment and product is standard-rated. If it can be spent on things at different VAT rates, it is a multi-purpose voucher and you account for VAT only when it is redeemed.
What is the difference between a single-purpose and multi-purpose voucher?
A single-purpose voucher has a known place of supply and a single VAT rate fixed at the time of issue, so VAT is due on sale. A multi-purpose voucher is any voucher that does not meet that test, typically one redeemable against supplies at different VAT rates, and VAT is due only on redemption.
When does a gift voucher count as income for tax?
Under the accruals basis, voucher proceeds are held as deferred income and only recognised as taxable turnover when the voucher is redeemed and you provide the service. So for most salons the income tax or Corporation Tax follows redemption, not the date of sale. If you use the cash basis as a sole trader, the timing can differ.
What happens to VAT on a gift voucher that is never used?
For a multi-purpose voucher, no VAT was due on sale and none becomes due if it is never redeemed. For a single-purpose voucher, the VAT was already accounted for on sale and there is no route to reclaim it if the voucher lapses. The unredeemed value is later released to your profits as taxable income.
Does the 2019 voucher rule still apply in 2026/27?
Yes. The single-purpose and multi-purpose voucher rules apply to vouchers issued on or after 1 January 2019 and remain the current law for 2026/27. The earlier face value voucher categories no longer apply to vouchers issued from that date.
