Supply and consideration ― VAT and salary sacrifice schemes

Produced by a Tolley Value Added Tax expert

Value Added Tax

Guidance

This guidance note looks at the VAT implications of salary sacrifice schemes.

For an overview of supply and consideration generally, see the Supply and consideration ― overview guidance note.

For detailed commentary on the legislation and case law in relation to salary sacrifice, see De Voil Indirect Tax Service V3.114.

Is salary sacrifice consideration for a supply?

HMRC’s guidance is clear that when deductions are made from salary for goods or services provided by an employer to their employees, they are liable for VAT. This is on the basis that the remuneration given up or sacrificed by the employee is consideration for the supply of taxable benefits supplied in return (assuming those benefits are taxable).

HMRC position is particularly influenced by a European case in which the CJEU was asked to consider an arrangement under which employees could opt to take part of their salaries in the form of retail vouchers. The Court found that the

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