The ECJ has recently ruled that benefits provided to employees under salary sacrifice schemes are VATable.

Some employers offer their employees the perk of giving up part of their salary or contractual bonus (which is liable for tax and NI contributions) in exchange for a new or enhanced non cash benefit which has a full or partial exemption for tax and NI. Examples of benefits include retail voucher schemes and cycle to work schemes which allow employees the chance of purchasing a bike at a considerably lower price.

In the case of Astra Zeneca, which involved retail vouchers, the company made a claim to HMRC for a reimbursement of the input VAT which was incurred in purchasing the vouchers for their employees. HMRC rejected the claim stating that the company had to pay the VAT incurred on vouchers bought as part of their employees’ remuneration packages. This was not expected as employees are not taxable persons for the purpose of VAT.

The ECJ agreed with HMRC stating that provision of a voucher to employees as part of their salaries constitutes a supply of services effect for consideration. What’s the bet the popularity of these perks is going to considerably wane?!

Katie Phillips