How does the decision in the AstraZeneca case affect the income tax treatment of benefits to employees under salary-sacrifice arrangements?
According to HM Revenue and Customs (HMRC), the decision of the European Court of Justice (ECJ) in AstraZeneca UK Ltd v HMRC Case C-40/09 ECJ does not affect the income tax treatment of benefits to employees under salary-sacrifice arrangements.
In AstraZeneca, the ECJ held that, where the company purchased retail vouchers at less than face value before passing these on to employees at that discount under a salary-sacrifice scheme, it could recover the supplier's VAT as input tax, but also had to account for VAT as output tax on the consideration received from its employees under the salary-sacrifice arrangement.
HMRC considers that the judgment is limited in its application to VAT. As such, it has stated that no amendments will be made to the published guidance relating to taxation of employment income under part 3 of the Income Tax (Earnings and Pensions) Act 2003 and its relevance to salary-sacrifice arrangements.
In respect of the employer provision of taxable benefits in kind, the amount to be included on the employee form P11D income tax return should include the full amount of VAT paid by the employer, irrespective of whether or not it may be subsequently recovered in whole or in part from HMRC.