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Post-functional money and VAT

I genuinely did not know this, having never been to either of the noted lap-dancing clubs Secrets or Platinum Lace, but such establishments require customers to buy vouchers, a private currency, to pay the dancers. The dancers do not, as you might expect in the modern world, accept credit cards (even contactless fnar fnar).

The customers are charged an entirely reasonable commission on the exchange of fiat currencies for the private currency. Presumably there are safety and security issues that drive the use of the private currency but I do remember reading about problems that occur in transactions of a similar context where the recipient, generally a marginalised woman, is presented with a collapsing currency (eg, Sterling) and cannot be sure of the value and therefore whether to accept the cash of note.

Anyway, for whatever reason, there is a private currency is circulation. As a result, the clubs are in a dispute with HM Revenue & Customs over whether they should pay VAT on the commission they charge for exchanging customers’ cash for vouchers to pay dancers. The clubs believe this commission, about 20%, is a financial transaction and so should be exempt from VAT. HMRC thinks differently.

(Wait, what? 20%? Are they using my agent?)

This story is an interesting example of the use of what you might call "company money". It’s akin to the use of chips in casinos or Disney Dollars. You change fiat currency that is good anywhere into a form of electronic money that is useful in only one area.

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