Supply of cars to employees under salary sacrifice scheme

The trust offered cars to its employees and those of other NHS trusts in the same divisional VAT registration under a salary sacrifice scheme. It claimed input tax of more than £14m on the basis that this was not a business supply (VATA 1994 s 41(3)). HMRC restricted recovery to 50% saying the VAT had been incurred for the purpose of a business so that the VAT (Input Tax) Order 1992/3222 (the blocking order) applied. A claim under s 41(3) does not fall within the scope of s 83 – right of appeal so the trust sought judicial review of HMRC’s decision. 

The issue was whether the car scheme was an economic activity for the purpose of the Principal VAT Directive art 9. The trust said when an employer provided a leased car through a salary sacrifice scheme it was ‘de-supplied’ for VAT purposes by...