VAT’s a sacrifice employers

    View Authors November 2011
    We reported in our August 2010 Review (please click here) that the European Court of Justice had ruled in Astra Zeneca UK Ltd v Commissioners for Her Majesty’s Revenue and Customs Case C-40/09 that employers would have to account for VAT on retail vouchers provided to their employees under salary sacrifice arrangements because the supply of vouchers is treated as the supply of services to the employees for VAT purposes.

    HM Revenue & Customs had not at that point issued any response to the decision but it has now published guidance on the approach it will take. The guidance states unsurprisingly that where the benefit provided under a salary sacrifice arrangement is subject to VAT, VAT will indeed be due from the employer on the value of the benefit.

    This means that benefits such as retail vouchers and bicycles (under the Cycle to Work Scheme) provided through salary sacrifice arrangements will generate a VAT liability for employers. Benefits that are not otherwise subject to VAT (e.g. childcare vouchers) will not give rise to a VAT liability, although do note that it will no longer be possible to recover VAT paid by the employer on administration fees charged by a provider of childcare vouchers.