The European Court of Justice has been looking at benefits provided to employees under salary sacrifice schemes.
In a recent case, employer Astra Zeneca offered a food benefits scheme, under which the employees could choose from a range of selected benefits, each of which resulted in a deduction from his or her normal salary. Retail vouchers were one of the benefits.
The firm claimed reimbursement from HMRC of the input VAT incurred when buying the vouchers, but HMRC rejected its claim, and the EU Court agreed that the employer must pay VAT in respect of the vouchers if/when they are supplied to its employees the salary sacrificed is regarded as payment for the vouchers.
This should result in a nil VAT burden for employers, where they simply pass on to staff the cost of the vouchers, including VAT, but clearly makes the vouchers a less attractive option.