A recent decision of the European Court has been heralded as the end of salary sacrifice schemes.

We don’t think it will be that drastic.

What the decision (against AstraZeneca) says, is that businesses cannot reclaim VAT on retail vouchers which employees have paid for out of their pre-tax salaries.

This sort of scheme used to mean a two-fold saving to the company: employers National Insurance (usually around 12.8%) and VAT. The benefit to the employee is a lower income tax bill, because of the reduction in their pre-tax salary.

Only the VAT part of the savings will be affected, meaning that salary sacrifice schemes could still be attractive to employers, provided the employees are made to cover the VAT bill.

The decision is also limited to retail vouchers. Most cycle to work schemes involve the employer buying the bicycle themselves and renting it back to the employee, meaning that there may still be a loophole.

So, if you are operating a similar scheme, get in touch with Springhouse to discuss, or watch this space for fresh HMRC guidance.

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Updates: For employers: Day to day HR support |
Tagged with: European court |

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