On 17 November 2022, the Court of Justice of the European Union (CJEU) released a decision in the case of GE Aircraft Engine Services (GE). It concerned the VAT treatment of ‘retail vouchers’ provided to employees by GE and 19 other members of the GE Group, under its ‘Above & Beyond’ staff reward programme.
GE had reclaimed VAT incurred on the purchase of the vouchers as input tax but had not then declared VAT as output tax on the issue of the vouchers to staff. HMRC raised assessments for underdeclared VAT against the group under ‘deemed supply’ rules.
Whilst the group offered other rewards under its scheme, such as cash incentives, it was only the retail vouchers that were the subject of HMRC’s assessment.
The case was referred to the CJEU by the UK First-tier Tribunal (FTT) while the UK was still a member of the EU.
The issue under consideration was whether the vouchers were for ‘private use’ either by the group or by the staff or, more generally, for purposes other than those of GE’s business.
The CJEU found in favour of the business, citing two critical factors:
- Any private advantage gained by the employees from the vouchers was merely incidental to the requirements of the business. The business bore the cost of the vouchers and issued them to high-performing staff to motivate them and improve their performance, the aim being to give an advantage to the business through potentially increasing its turnover.
- The vouchers issued to employees were ‘multi-purpose vouchers’, on which retailers would account for VAT at the time the vouchers were redeemed. Therefore, if the business was required to account for VAT on the issue of the vouchers to the staff, this would result in double-taxation.
What does this mean for me?
For businesses that offer reward scheme to employees, you should consider whether or not VAT has been accounted for correctly.
The case itself only considered multi-purpose vouchers. It remains to be seen whether or not the same principles could be applied to other rewards provided to employees.
Further, it is not yet clear what stance the UK courts will take on the matter, and HMRC is yet to comment on the case.
Notwithstanding this, businesses in a similar situation should consider whether or not a claim for overpaid VAT can be made, which could potentially result in a bottom-line VAT refund.
Vouchers can be an effective mechanism for recognising employees and can, in certain circumstances, be provided in a tax-efficient manner. It is therefore important to look at any other tax considerations in relation to issuing vouchers to employees, such as whether or not a benefit-in-kind arises and what reporting obligations there may be.
How we can help
Evelyn Partners has a highly experienced VAT team with significant experience in advising UK and international businesses on the application of UK and EU VAT law, across a broad range of sectors. We would be happy to have a conversation with any businesses that would like to discuss the implications of this decision further.
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By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.