The European Court of Justice (ECJ) has followed the recent opinion of the Advocate General and ruled that the provision of vouchers for employees in exchange for a salary sacrifice is a VATable supply.
Pharmaceutical giant AstraZeneca fought the case, which involved giving retail vouchers to employees as part of a salary sacrifice scheme. The vouchers are for a nominal value of £10 each, but give rise to a deduction from salary of a discounted amount of between £9.25 and £9.55.
AstraZeneca contended that the cost of acquiring the vouchers was a business overhead and it ought to be able to deduct input VAT on their cost, but not have to pay output VAT on their provision because they were not a taxable supply.
HM Revenue and Customs rejected this argument.
The matter was referred to the ECJ, which ruled that providing employees with retail vouchers as part of a salary sacrifice scheme does constitute a ‘supply of services for consideration’ within the scope of the VAT Directive and they are therefore subject to VAT.
Employers using vouchers (or other salary sacrifice arrangements that involve a potentially taxable supply) to reward staff should check how they account for any VAT in the light of this decision.