In Astra Zeneca [2010] STC 2298 CJEU Case C-40/09, a salary sacrifice scheme whereby employees agreed to forgo salary in return for food and meal vouchers were deemed to be a supply of services made by the employer.

Under the company's salary sacrifice arrangements, staff agreed to a reduction in their salary and were istead provided with retail vouchers which allowed them to buy to food and purchases from supermarkets.

The CJEU held that there was a supply for consideration when an employee sacrificed salary in return for receiving a supply of goods or services.

The provision of the vouchers was a supply of services because the vouchers did not immediately transfer the right to dispose of property and, under article 24, any transaction which does not constitute a supply of goods within the meaning of Article 14 is regarded as a supply of services.

Additionally, the CJEU held that there was a direct link between the provision of retail vouchers and the salary sacrifice by the employees, ie the amount by which their remuneration was reduced.

The CJEU ruled that the value of the supply was the salary forgone.

Editorial note

HMRC subsequently changed their guidance on salary sacrifice schemes in Business Brief 28/11:

  • Valuation of benefits provided: in most cases the value of the benefit for VAT purposes will be the same as the salary deducted or foregone. Where the true value is not reflected, for example where benefits are supplied below what it cost to acquire them, the value should be based on the cost to the employer.
  • Purchase of item by employee: where an employee chooses to purchase an item at the end of the salary sacrifice arrangement, such as a computer, or a bicycle provided under a Cycle to Work Scheme, the consideration given for the supply of the goods at that time will be taxable (subject to any special rules affecting particular goods such as cars).

Useful links

Staff and VAT

Optional remuneration schemes & salary sacrifice

Agency workers: employment intermediaries rules

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