RCB/28/11 VAT—changes to the treatment of certain supplies made by employers under salary sacrifice arrangements following the CJEU Judgment in Case C-40/09
Revenue & Customs Brief, Issue 28. 28 July 2011
Astra Zeneca operated a flexible remuneration package scheme under which employees could opt to take part of their remuneration in the form of goods and/or services rather than as salary. The case before the Court of Justice of the European Union (CJEU) concerned the correct VAT treatment of high street shopping vouchers provided to employees as one of the options of the scheme.
The Court found that the provision of vouchers amounted to a supply of services effected for consideration. As a consequence, whilst Astra Zeneca was able to recover VAT incurred on acquiring the vouchers, output tax was due on the consideration received from its employees.
Although this case was concerned with the supply of vouchers to employees, the principles considered by the Court are of general application and will apply to other supplies of goods and services to employees.
1.2 The UK position on the provision of goods and services via salary sacrifice or deductions from salary
Following earlier decisions by the UK courts, HM Revenue & Customs' (HMRC) policy was to make a distinction between the VAT treatment of supplies of goods and services to employees by a deduction from salary, and those provided under a salary sacrifice arrangement.
1.2.1 Deduction from salary
This occurs where an amount is deducted from an employee's pay in return for a supply