On 29 July the European Court of Justice ruled that employers must account for output tax on the supply of salary sacrifice retail vouchers to employees. 

It is believed that, although many employers recover VAT charged to them when they buy retail vouchers, it is likely that some of those that do not account for output tax on the provision of the retail voucher to the employee. Now that the ECJ has followed the Advocate General’s opinion, which was delivered in April, it is likely that HM Revenue & Customs will begin to assess employers for the output tax due on retail vouchers.

Many employers were shocked at the AG’s opinion delivered in April but have waited until this judgement was released before looking at their own salary sacrifice schemes. Now that this judgement confirms their fears in respect of retail vouchers, we recommend that employers look at all their salary sacrifice arrangements. Although the ECJ’s judgement is clear that its conclusion is partly based on the fact that the burden of the VAT on the provision of those vouchers is borne by the employee, HMRC may take the view that all salary sacrifice arrangements are affected. 

Employers therefore face a period of uncertainty until the UK Court delivers its final judgement and HMRC publish their policy.