Astra Zeneca UK Ltd v R & C Commrs (Case C-40/09)

VAT/Salary Sacrifice - retail vouchers to employees

As part of their employee’s remuneration package and the company’s salary sacrifice scheme, Astra Zeneca Ltd allowed employees to choose from a range of benefits including retail vouchers.  These were standard gift vouchers in denominations of £10 which were redeemable from High Street retailers.

Astra Zeneca Ltd sought to recover the input tax incurred on purchasing the vouchers, but HMRC denied the input tax claim as output tax was not accounted for on the supply to staff.  HMRC ruled that as Astra Zeneca Ltd did not make a taxable supply (as output tax was not accounted for on the supply of retail vouchers to the employees) the input tax incurred on their purchase of vouchers should be an irrecoverable cost for the company.

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Astra Zeneca Ltd believed that HMRC’s view was incorrect so it proceeded to the First Tier Tax Tribunal for an independent judgement of the issue.  The Tribunal felt it necessary to obtain an opinion from the European Court of Justice (“ECJ”) for a ruling on the correct interpretation of the VAT rules relating to this type of salary sacrifice where employers purchase vouchers and pass them to employees en lieu of salary.

The ECJ has confirmed that in its view the vouchers provided by Astra Zeneca Ltd to its employees constituted a “supply of services”, on the basis of how vouchers are treated for VAT purposes.  As there was a direct link between the provision of the retail vouchers to the employees and the corresponding deduction of salary the ECJ has ruled that a supply has been made in return for a consideration.  Consequently the only way for an employer to recover input tax incurred on the cost of the vouchers is to account for VAT on their disposal.

The affect of the AstraZeneca case on UK organisations that operate salary sacrifice schemes is still unclear as the UK Government must now decide on the action it should take in light of advice from the ECJ.  Retrospective assessments could be issued to employers which would likely result in a real VAT cost, and moving forward employees could lose out as employees may safeguard their VAT recovery position by imposing VAT charges.

We will provide further information once HMRC has issued guidance on how it wishes to proceed following the AstraZeneca result, but if you would like to discuss this further please do not hesitate to contact any member of our VAT team.

Edinburgh

Scott Craig: scott.craig@scott-moncrieff.com
Alan Glen: alan.glen@scott-moncrieff.com
Iain Masterton: iain.masterton@scott-moncrieff.com

Tel: 0131 473 3500

Glasgow

Greg McNally: greg.mcnally@scott-moncrieff.com
Anthony Cochrane: anthony.cochrane@scott-moncrieff.com

Tel: 0141 567 4500