IAmSinistar: I figured. I was just describing a possible side effect. :)
That's screwed up. They should not be charging VAT on the purchase of the credit, because it is exchanging money for an in-kind currency. That would be like a casino charging sales tax on your betting chips. The VAT should only be charged when the credit is redeemed for goods, and then should only be charged on purchases where VAT is applicable.
Either their accountant is woefully undertrained or they are double-dipping.
I got a reply back. They said that they removed it from purchases of gift certificates/ store credit and thanked me for bringing it to their attention. They sound like they genuinely hadn't realised that they screwed this up regarding the charge and collection of VAT (took them two replies to understand what I was talking about and address it), though this kind of screw up makes me doubt the competence of their accountant. Perhaps it was just some lazy coding, or a miscommunication between coder and accountant.