Advisers have warned that companies could be open to probes from the taxman
after European judges ruled AstraZeneca must account for VAT when passing on
shopping vouchers to staff in salary sacrifice schemes.
The FTSE100 giant had previously bought the vouchers with VAT included and
then recovered the tax before handing them over to staff.
However, the European Court of Justice said giving staff vouchers which could
be used to buy goods and services represented a “supply”, and that VAT is due on
the amount of salary sacrificed.
Marc Welby, VAT partner at BDO, believed the decision could cost employers
over £100m per year, with an additional £500m due if HMRC look to collect VAT
from the last four years.
Because of the ruling, companies may find themselves exposed to “significant
” VAT probes from the taxman if they do not account for the VAT when they
transfer them to staff members.
Giles Salmond, a director in the Deloitte tax dispute resolution group, and
adviser to AstraZeneca during the ECJ case, said:
“Large employers which use retail vouchers as part of any salary sacrifice
arrangement for staff may now have to revisit how they deal with the VAT
accounting on these vouchers.”
The ECJ believes it should result in a nil VAT burden for employers, where
they simply pass on to staff the cost of the vouchers including VAT, but
advisers do not agree.
Welby commented that “This decision of the European Court will result in many
employers who have introduced salary sacrifice arrangements – and not just
voucher arrangements – being landed with a substantial additional VAT liability.
It will also cause confusion as the salary sacrificed is not treated as a
payment for direct tax and national insurance purposes, he added.
Ellie Gamble, senior manager of Employer Solutions at Grant Thornton, said
almost 50% of the UK’s employers offer their staff some kind of flexible
benefits package with discounted retail vouchers being a popular option.
“For employers using salary sacrifice arrangements for vouchers, this
judgement could potentially cost significant sums.”
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