A European court tax ruling may mean that company cars schemes are more expensive to run, Deloitte has said.
Since January, companies have had to pay VAT on non-cash goods and services provided to employees in exchange for some of their salary, HMRC announced.
Employers will still be able to reclaim tax paid to suppliers for the goods and services as input tax.
The change to the VAT treatment of salary sacrifice schemes, which often include such as bikes, childcare vouchers, and high street shopping vouchers, follows a ruling last year by the European Court of Justice (ECJ) over a tax dispute between AstraZeneca UK and HMRC (Case C-40/09).
The case involved retail vouchers provided to employees as part of a remuneration package.
Astra bought retail vouchers at less than their face value and passed them on to employees at that discount - the cost of which was then deducted from their employees’ pre-tax salary.
The dispute with HMRC was triggered after Astra argued that it did not have to charge VAT on the supply of vouchers to the employees.
The ECJ agreed with HMRC, ruling that the salary sacrificed was a supply of services in return for a payment and was therefore subject to VAT. Before the court ruling it was generally assumed that salary sacrifice schemes would not be subject to VAT.
In new guidance on VAT rules for salary sacrifice schemes HMRC says that the ECJ Astra ruling has wider implications for the VAT treatment of salary sacrifice schemes.
Company car schemes may be affected, Nathan Male, director, Deloitte Car Consulting, has said. He told FleetNews: “In essence we believe the position is there is going to be a cost implication for employers operating company car salary sacrifice schemes. We are currently digesting the guidance.”