Tusker raises concern over salary sacrifice schemes
A new ruling, due to come into force from the start of next year, will result in some salary sacrifice schemes falling short of the law.
Pharmaceutical company AstraZeneca was forced to account for VAT on the salary sacrificed by its employees after Court of Justice of the European Union ruled in favour of Her Majesty’s Revenue and Customs last year.
This ruling means that businesses providing benefits under arrangements which qualify as salary sacrifice schemes for VAT purposes, must now account for output VAT.
Imperative
David Hosking, Managing Director of Tusker, said HMRC’s clarification means that poorly structured schemes should appoint a salary sacrifice provider with the experience in this arena to avoid any new issues.
“The provision of company cars via salary sacrifice will not be impacted by the HMRC guidance provided VAT recovery is restricted, either by 50% or 100%, and output VAT is not due, which is the case with all Tusker’s schemes,” explained Mr Hosking.
“It’s also imperative that any salary sacrifice car arrangements should be reviewed in their entirety to ensure all the constituent elements, for example maintenance, are correctly treated.
“In relation to cars, the new rules only apply to salary sacrifice arrangements where it is perceived that employees are buying or paying for benefits or services from their employer, such as retail vouchers.”
Example
Assume an employee is paid an annual salary of £30,000 with £4,000 going to salary sacrifice, said David.
“The employee is still paid £30,000 but gets £26,000 in cash and £4,000 by way of the right to the loan or bailment of the company car as a benefit in kind,” he explained.
“In this example, the employer is ‘paying’ £30,000 to the employee as consideration for the employee’s services under the employment contract. It does not involve a ‘payment’ by the employee. The whole salary is still being paid by the employer to the employee, part of it is still in cash, but part of it is now being paid in kind.
“In other words, far from being a ‘payment’ by the employee, the amount of the salary sacrifice is still actually a receipt by the employee. It is consideration in kind – the bailment or loan of the car to the employee in return for his or her services under the employment contract,” he said.
The European Court of Justice ruling will have no impact on the leasing of company cars, said John Lewis, Chief Exec of the British Vehicle Rental and Leasing Association.
"However, a question mark remains over how the ruling will impact any maintenance agreement included as part of the lease,” he added.
“HMRC is currently unable to clarify this issue, but we will keep the industry informed of any further guidance when we receive it,” he said.
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