In a case between AstraZeneca and HM Revenue & Customs (HMRC) the Tax Tribunal has ruled that VAT is not recoverable on vouchers employers provide to staff under a salary sacrifice or flexible benefits arrangement.
AstraZeneca argued it was entitled to claim back VAT which it had incurred on the purchase of retail vouchers. These vouchers were provided by the pharmaceutical company to its employees who had elected to take vouchers in lieu of salary as part of their remuneration package.
It is thought that the amount of VAT at stake in this particular case could be as much as £145million per year. HMRC, however, has said the firm is not entitled to recover the VAT on the purchase of the vouchers.
The Tax Tribunal has decided it is unable to determine the appeal without first seeking clarification from the European Court of Justice (ECJ) on whether or not VAT is deductible and/or whether there is an obligation to account for VAT when the vouchers are given to employees.
Following earlier decisions of the VAT and Duties Tribunal, the outcome of the case marks a departure from HMRC's policy whereby salary sacrifice arrangements were not considered for VAT purposes.
Marc Welby, VAT partner at BDO Stoy Hayward, said: “HMRC’s challenge raises the question of whether any similar voucher and salary sacrifice arrangements that employers have adopted will now give rise to an unforeseen VAT liability.
“Over recent years vouchers and salary sacrifice schemes have become a significant and particularly tax effective part of structuring employee remuneration and the uncertainty created by this case could last for several years. An adverse decision from the ECJ in this case will have major repercussions for many businesses."