18 August, 2010
The European Court of Justice has recently handed down their opinion on the taxable status of salary sacrifice schemes.
In the case of Commissioners for HMRC v. Astra Zeneca UK Limited, the ECJ decided that Astra Zenica's salary sacrifice scheme was subject to VAT, as contended by HMRC.
Astra Zeneca run a scheme whereby their employees have access to vouchers for use in retail stores. This was done as part of a salary sacrifice, with the employees gaining a financial incentive if they took up the offer of the vouchers rather than receiving full salary.
It was contended by the Revenue that this constituted a supply of services to other employees and, as such, ought to be subject to VAT being paid by the employer. The European Court of Justice has agreed with this assertion.
It is therefore likely that employers will now seek to withdraw any such salary sacrifice schemes that they may have in place. Failure to do so could leave the employers liable to tax demands in respect of their provision of salary sacrifice benefits. It is therefore very important that any employers who operate these schemes do seek advice on the implications of the decision for them.
"Salary sacrifice schemes will normally form part of an employee's terms and conditions of employment. If any employer seeks to vary an employee's terms and conditions unilaterally, this can give rise to claims for, amongst other things, constructive unfair dismissal. Furthermore, it may be the case that certain employees are more likely to take advantage of salary sacrifice schemes - for example, the provision of child care vouchers is more likely to be used by younger employees statistically. This could give rise to potential discrimination claims in the event that employers unilaterally withdraw the benefit from their employees without proper consultation.
This is a complex and difficult area of law and any employer faced with potential problems in this regard should seek professional advice."
For advice in dealing with any employment-related issue please contact the Forbes Employment Team, the largest specialist team of employment lawyers in Lancashire, on 01254 222399.