ECJ ruling puts VAT on salary sacrifice schemes Drugs giant Astra Zeneca should pay VAT on retail vouchers given to staff that form part of a salary sacrifice scheme, the European Court of Justice (ECJ) has said. The ruling could derail some similar schemes. Salary sacrifice schemes operate by allowing employees to receive vouchers or benefits instead of part of their …
So this effectively says that salary sacrifice is actually a sale of services to employees! How long before they decide giving someone a job is giving them a service and so subject to VAT. Labour wanted to put an extra 1% on employers NI, here seems a great opportunity to add an 20% tax from January.
I've got a "bike for work" (the government scheme), you are charged VAT, but the money is taken from your pay before income tax. There is also an extra incentive given to the company which they pass on to me. It works out that the bike costs about 45% of its retail value, with money taken monthly over three years. The bike is mine at the end, so I'm not sure where your scheme gets the 25% value from?
Would it be possible to NOT link the value of the salary sacrifice to the value of the vouchers supplied and state that the value of the service provided is far below the cost of the purchasing of the vouchers? Whilst some VAT would need to be paid for the "service" of providing the voucher, this would be a lower value compared to the VAT reclaimed in the purchase of the vouchers, and so mean that the cost to the company would not necessarily be as high.
I dont normally advocate creative accounting (especially by companies) but this seems like a ridiculous move by HMRC that will only hurt the workers of these companies...
"....said accountancy firm Deloitte, which advised Astra Zenica in the case....."
Are we sure that should not read something like: "....said very pissed off accountancy firm Deloitte, who flogged Astra Zenica this tax avoidance scheme and are now about to be nailed to the cross for dropping their customer up to their ears in the poo."
That's more usually the way this works.
Are they paying VAT when they purchase the vouchers, getting the VAT refunded, then not paying VAT when they give the vouchers to employees? That at least sounds reasonable, although apparently (given this article) a gray area.
Or are they not paying ANY VAT, then applying for a VAT refund? Because if so, that sounds like a ripoff of the gov't to me.
Company buys vouchers from retailer, inc VAT
Company claims back VAT on vouchers
Employee buys vouchers from Company
Employee spends voucher in shop
So under the current scheme the shop get their money for the purchase, including VAT, but the taxman gives the VAT to the employer.
Exactly how is the employee benefiting here?
the usual way of doing this is that the employees on PAYE receive a higher value of vouchers than the amount that has been deducted from their salary after tax. I think that the saving that pays for the higher value comes in as a result of the employee not paying income tax on the vouchers
why the European court is ruling on UK VAT issues? Or is VAT an EU imposed tax?
It seems odd to do salary sacrifice in return for vouchers, especially £10 vouchers! I think I'd stick to services the company can provide and arrange (childcare, hardware purchasing etc) and deal with it in-house.
"The company claimed that it was permitted to claim back the VAT it had paid on the purchase of the vouchers, but not account for VAT when giving the vouchers to employees."
What do they mean by "account for VAT" as given above?
If it means charge the employee VAT then it is arguably a bad judgement*, but if it means something like take the VAT amount into consideration when calculating the value of the vouchers with regards to salary sacrifice then I don't see a problem with that.
*Remember though children, even at 17.5% or even 20% VAT you will still be making more money out of the exchequer (for that read "the rest of us who pay tax") than you would if you had paid income tax and NI on the voucher but no VAT. Especially if you are a higher rate tax payer.
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