EU judges clear path in voucher VAT minefield

EU judges have paved the way for employers to claw back VAT from vouchers given to staff in salary sacrifice.

The Advocate General issued an opinion in a significant case involving pharmaceutical giant AstraZeneca, which deals with the complex area of VAT and the treatment of retail vouchers.

Employers buy these vouchers from an intermediary before passing them on to staff.

The Advocate General’s opinion, which the European Court will consider before it gives a final ruling later this year, has said employers may recover VAT when it is charged to them on retail vouchers.

But Deloitte warned that the VAT had to be accounted for by passing on the cost to staff, if businesses wanted to avoid a VAT burden.

The firm believed "many employers recover the VAT charged by the intermediaries, but are not accounting for VAT when the vouchers are passed to employees.

"If this is the case and the ECJ follows the Advocate General’s opinion business may face VAT assessments."

The Advocate General added that the European Commission may want to consider whether current UK rules concerning the VAT treatment of vouchers are in line with European VAT law.

Giles Salmond, a director in the tax dispute resolution group at Deloitte, who advised AstraZeneca in this litigation, said: "This is an important step in clarifying how the complex VAT rules on vouchers should be applied.

"If the Advocate General’s opinion is followed, businesses may have to revisit how they deal with vouchers as part of salary sacrifice schemes."

Further reading:

Court ruling puts Royal Mail's VAT exemption under threat