Do employers have to account for VAT in relation to vouchers and other goods and services provided to employees under salary-sacrifice arrangements?
In AstraZeneca UK Ltd v HMRC Case C-40/09 ECJ, the European Court of Justice (ECJ) ruled that, where an employer has in place a salary-sacrifice scheme, output tax (that is the amount chargeable on sales) is due on the remuneration given up by the employees, as this is consideration for the issue of vouchers that can be used by the employees to purchase goods or services. The supply of the retail vouchers must be treated as a supply of services for VAT purposes. As a result of this decision, while employers are able to recover the input tax in relation to vouchers (that is the amount of VAT paid on purchasing the vouchers), output tax is due on the consideration received (the salary waived) from their employees.
Although this case dealt with the correct VAT treatment of high street shopping vouchers, HM Revenue and Customs (HMRC) has confirmed that the principles applied by the ECJ are not limited to vouchers, but apply equally to the supply of other goods and services to employees. For example, where a cycle to work scheme is provided under a salary-sacrifice arrangement, the employer must account for output tax based on the amount of salary given up by the employee in return for the hire or loan of a bicycle or safety equipment.