Following the recent European Courts of Justice ruling on the tax treatment of retail vouchers offered in exchange for remuneration, Richard Stewart, Director at Redbourne, discusses the key aspects with Chris Blundell, Partner and Head of the Employment Tax Services team at Mazars LLP.
RS - The ruling appears to be quite technical - please can you provide a basic overview of what was decided.
CB - The case relates to retail vouchers provided under a salary sacrifice arrangement by Astra Zeneca to its employees. The judgement confirms the position of the UK tax authorities that the supply of the vouchers by an employer to an employee is a VAT supply on which VAT is due. VAT is due on the amount of salary sacrificed by the employee.
RS - What does the decision mean for organisations operating retail vouchers as part of their employee benefit packages?
CB - It is very likely that other employers providing high street vouchers will be required to account for output VAT on the provision of the vouchers to their employees. We know that some employers have not recovered input VAT on the purchase of these vouchers. In these cases HMRC will probably accept that no further tax is due for the past. For the future though, HMRC are likely to expect all employers to account for VAT on the provision of retail vouchers to employees and reclaim the input tax against this from their purchase.
Employers whose business involves making supplies of VAT - exempt goods or services (e.g. insurance and banking) won't be disadvantaged by the judgement compared to those employers that make VATable supplies.
RS - What can an employer do now and what are we waiting to hear from HMRC following this ruling?
CB - We clearly wait to hear HMRC's announcement on this ruling and how they intend to apply this ruling in the UK. In the meantime employers offering retail vouchers to employees via a salary sacrifice arrangement or flexible benefits scheme need to prepare for the likely requirement for VAT to be applied to the cost of the vouchers and for these rules to be back dated. Those providing benefits like gym membership or anything else where the benefit is a voucher given to the employee should just check with their advisers to get confirmation they're not caught.
More generally, employers need to keep a watch on the situation to ensure the scope is not widened beyond retail vouchers and to take professional advice at the time any widening of scope becomes apparent.
RS - What could it mean for other benefits that are subject to VAT
CB - This ruling is only in respect of retail vouchers. It may be that when HMRC review this ruling they decide to seek to extend this principle into other areas but no definitive statement has come from HMRC on their position as yet.
Clearly although HMRC may take another look at this, no VAT currently arises on nursery schemes and child care vouchers. It is also hard to see that a VAT supply arises on which VAT will be due on the provision of items like pensions, private healthcare and additional annual leave. In fact I can be categoric and say that VAT won't as matters stand apply in such situations. Bikes like nursery schemes and child care vouchers are currently government sponsored schemes. As with nursery vouchers and bikes, it would require changes to existing UK VAT legislation or HMRC policy for the provision of cars to employees to become subject to VAT.
For more information, please contact Richard or Chris
Richard Stewart, Director - Redbourne
+44 (0)870 166 4400 / +44 (0)20 8339 8822 (direct)
Chris Blundell, Partner - Employment Tax Services, Mazars LLP, London
+44 (0)20 7063 4000 / +44 (0)20 7063 4281 (direct)
About Mazars
Mazars is an international accountancy, tax and business advisory firm with a global reach to almost 100 countries. They advise companies of all sizes from large and listed companies - they act for more FT Global 500 companies than any firm outside the Big 4 - to owner managed business companies. In the UK for example, they have over 100 partners and 1,200 staff including 200 tax staff. They were recently awarded the "Best Tax Team in a Large Firm" at the 2010 LexisNexis Taxation Awards.
