Salary sacrifice schemes are often used by employers to give their employees vouchers as part of their salary. Common examples include vouchers for childcare or bicycles and cycling equipment. The European Court of Justice (ECJ) has recently ruled that drugs giant AstraZeneca should pay VAT on retail vouchers provided to staff as part of their salary. AstraZeneca attempted to claim back the VAT it paid on the purchase of the vouchers and also sought to avoid having to pay VAT when distributing the vouchers to employees. HMRC disagreed and the ECJ found in favour of HMRC. The ECJ’s reasoning was that the salary sacrificed by the employees constituted ‘payment’ for a supply by the employer to the employee.
Tax experts warn that the decision could have significant consequences for employers who operate such schemes. Significant VAT assessments could arise for businesses who have recovered VAT on retail vouchers but have not accounted for the VAT on the supply of the vouchers. Some warn that HMRC could seek to recover tax due over the past four years costing employers in the region of £500m. It is also forecast that the decision could cost employers £100m per year in the future. Advisers warn that the decision could result in taxation of other benefits such as mobile phones and computers.
Businesses which operate salary sacrifice schemes would be wise to review the VAT treatment of benefits on offer to employees to ensure that they comply with the decision.
Simon Allison, Associate
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