Tax Blow For Employee Voucher Schemes


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.

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