Employers that offer retail vouchers as part of salary sacrifice schemes could be forced to fork out up to £500m in unpaid VAT, a law firm has cautioned.
The warning follows an opinion issued by the Advocate General of the European Court of Justice earlier this week on a significant case involving pharmaceutical giant AstraZeneca and the complex area of VAT and the treatment of retail vouchers.
The Advocate General recommends that VAT should be paid to HM Revenue & Customs on vouchers given to employees, as the salary sacrificed by the employees is payment for the vouchers.
The European Court will consider the opinion before it gives its final ruling later this year.
But law firm BDO LLP warned that the move could have cost employers around £500m over the past four years in unpaid VAT and more than £100m per year in future; Childcare vouchers could be affected by the ruling.
Employers could face the prospect of revenue and customs ‘knocking at the door’ and ‘issuing assessments for VAT’. Marc Welby, VAT partner at BDO, told Personnel Today: “Employers should carry out a review of not just voucher schemes but any other salary sacrifice arrangements because the implications of this opinion is that potentially all salary sacrifice arrangement may lead to a VAT liability.”