Astra Zeneca provided part payment of salary to some of its employees by way of retail vouchers, as it was able to acquire these vouchers at less than their face value (the Court using the example of acquiring a voucher with a face value of £10 for £9.50) in order that their employees were able to acquire the vouchers at below face value and hence receive a benefit.
Astra Zeneca claimed that it should not have to charge VAT on the provision of the vouchers to its employees because they were not a “supply of goods or services effected for consideration” as per Directive 2006/112/EC (the Sixth Directive), but claimed that it should receive credit for the input tax incurred in purchasing the vouchers as they were a “business overhead”.
HMRC refused to make the input tax incurred on the vouchers tax-deductible, and argued Astra Zeneca was not entitled to credit for the input tax it incurs on buying vouchers, because the company did not use them for the purposes of any taxable transactions.
HMRC argued in the alternative, that if the input tax was recoverable it should account for VAT (the output tax) incurred on the provision of the vouchers to its employees either because the vouchers are given for consideration, or because they were made available to employees for use for a purpose other than a business purpose.
On appeal to the European Court of Justice, the Advocate General found in favour of HMRC’s alternative argument, that the input tax was recoverable, but that the part payment of salary in vouchers was a supply of services effected for consideration, and therefore was also subject to VAT.
This decision will be of interest to companies who until now, have claimed an input tax credit on the purchase of vouchers and not accounted for the ouput tax on the provision of the vouchers as part of a salary sacrifice scheme.
The result of this case would seem to be that the provision of a voucher by an employer to an employee will be chargeable for VAT purposes, unless it can be shown that there is no link between the provision of the voucher and a reduction in the employer’s salary. The result of this is that certain salary sacrifice agreements may cease to be viewed so favourably by employers and employees alike.