Salary sacrifice has for many years been popular with employers as a way of rewarding staff.

Employees elect to receive vouchers which they can then redeem against goods or services, like childcare or computers.

Many larger employers, such as Astra Zeneca, extended it to include selected retail outlets.

The advantage to the employee stems from the value of the voucher being deducted from their salary before tax.

Many employers reclaimed the VAT on the vouchers through their input tax, but were not required to account for the VAT when passing the vouchers on.

HMRC disagreed and the tax tribunal took the case against Astra Zeneca to the European Court of Justice (ECJ).

In August the ECJ ruled in favour of HMRC, finding that Astra Zeneca should pay the VAT on the vouchers.

As a consequence, many businesses operating similar schemes with retail vouchers will now be required to account for the VAT retrospectively.

The final outcome is that salary sacrifice schemes are now considerably less attractive.

• For assistance on any aspect of staff remuneration contact Glen Thomas on 01622 690666 or email glen.thomas@dsh.co.uk