Court rules VAT is due on salary sacrifice retail vouchers

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The European Court of Justice has ruled that employers must account for output tax on salary sacrifice retail vouchers to employers.

Global pharmaceutical company, Astra Zeneca, has lost its case on the VAT treatment of retailer vouchers provided to employees as part of their remuneration package.

Although many employers recover VAT charged to them when they buy retail vouchers, there are likely to be a number who do not account for output tax on providing the vouchers to employees. Further to the ECJ’s ruling, experts say it’s likely that HMRC will start assessing employers for the output tax due.

It's estimated that the decision could cost employers half a billion pounds in unpaid VAT backdated over the last four years and over £100 million going forward. 

The...

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Gina Dyer
Deputy Editor
Sift Media
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12th Aug 2010 11:21

Does this have further ranging implications?

It has long been established that the benefit declared on the P11D should include the VAT so the income tax man doesn't completely lose out. So if 40% taxpayer is given a benefit that costs (inc VAT) £60 then the taxman gets £24 tax not the £40 he would have had if the employee had been paid more, taxed and bought the item himself.

The VAT man however is worse off as the employer reclaims the VAT but the employee wouldn't be able to.

So is this salary sacrifice ruling actually applicable to all VATable benefits?

If a benefits package is pay plus health insurance then does VAT on the insurance "output" have to be paid over (or not reclaimed) too? What if the employer says "ok the salary is this plus you can choose from a range of benefits up to this cost"? Surely HMRC will be arguing that any package that has non-pay elements is salary sacrifice in another form, ie it may not be described as such but the effect is the same, the total cost of employment is split between pay and benefits.

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