.png)
.png)
A ruling by the European Court of Justice (ECJ) on VAT on salary sacrifice schemes could see HMRC assessing employers for output tax over the last four years, tax advisers have warned.
The case involved pharmaceutical giant Astra Zeneca and concerned retail vouchers the company provided to staff members as part of their remuneration packages.
The ECJ ruled that the salary sacrificed was ‘payment’ for a supply by the employer to the employee and, depending on the benefit provided, was potentially subject to VAT.
Advisers have warned that the court’s decision might affect other types of benefit provided under salary sacrifice schemes, such as computers and mobile phones.
With the ECJ telling HMRC to collect VAT on some schemes, businesses could lose up to ‘half a billion pounds over the past four years in unpaid VAT, and over £100m per year going forward,’ according to law firm DLA Piper.
Tax partner Richard Woolich said: ‘The ruling means businesses that use this or similar voucher and salary sacrifice arrangements will have to review the VAT treatment on benefits on offer to their employees, and may look to restructure their systems to make sure any benefits are free of VAT liability.
‘Employers may face poor take-up of the schemes in the workplace if they pass on the VAT cost to employees. It is not clear to what extent HMRC may seek to recover under-declared VAT for previous years,’ added Mr Woolich.
Baker Tilly VAT partner Steve Hodgetts remarked that many employers were shocked by the ECJ’s decision.
'We recommend they look at their salary sacrifice arrangements as a matter of urgency. It is likely to cost them a substantial amount of money as HMRC is entitled to assess employers for any output tax due over the last four years,' he said.
