Astra Zeneca UK Ltd v Commissioners for Her Majesty’s Revenue and Customs

Some companies offer employees “salary sacrifice” schemes under which the employee opts to take advantage of a benefit, the value of which is then deducted from their salary. In Astra Zeneca UK Ltd v Commissioners for Her Majesty’s Revenue and Customs, the European Court of Justice (ECJ) said that companies must pay VAT on retail vouchers offered to employees which may, in turn, have implications for such schemes.

Basic facts

Astra Zeneca offered its employees an overall remuneration package which included a fixed amount of cash, called the “Advantage Fund”, and a choice of benefits.

Employees were made aware that, for each benefit they chose, the company deducted a specific amount from their “fund” - a form of salary “sacrifice”. The benefits included £10 retail vouchers that could be used in certain shops to buy either goods or services.

Astra Zeneca bought the vouchers at a discounted price, which it passed onto the employees so that the salary they sacrificed was significantly less than the face value of the vouchers - usually between £9.25 and £9.55 was deducted rather than the full £10.

The company then claimed that Her Majesty’s Revenue and Customs (HMRC) should reimburse the VAT it had to pay on the vouchers when it bought them.

HMRC, however, did not agree and ruled that the company was liable to pay VAT on the vouchers as they were being supplied to employees as part of their overall remuneration package, as per article 2(1) of the VAT directive.

Relevant law

Article 2(1) of the Sixth VAT Directive states that the “the supply of goods or services effected for consideration” is subject to VAT and applies to any “taxable person”.

A taxable person covers anyone carrying out an economic activity including “activities of producers, traders and persons supplying services ...”.

VAT and Duties tribunal decision

The VAT and Duties tribunal stayed the proceedings and referred a number of questions to the ECJ.

The main question it asked was whether the provision of a voucher to employees constituted “a supply of services for consideration” if the employees were contractually entitled to take part of their remuneration in the form of a voucher.

ECJ decision

And the ECJ said it was.It reasoned that the retail vouchers allowed the employees, who took them as part of their salary, to purchase goods or services in specific shops. That gave them “a future right to goods or services” which weren’t specified at the time of buying them.

Consequently, as the vouchers did not give the employees the immediate right to the goods or services, their provision constituted, for VAT purposes, a “supply of services”.

In terms of whether the services were supplied for “consideration” (in other words, some sort of quid pro quo), the ECJ said all that was needed was a direct link between the service provided and the consideration received.

In this case there was - Astra Zeneca provided the retail vouchers to employees and the employees “paid” for them by virtue of the deduction made by the company from their salaries.

The ECJ concluded therefore that article 2(1) “must be interpreted as meaning that the provision of a retail voucher by a company, which acquired that voucher at a price including value added tax, to its employees in exchange for their giving up part of their cash remuneration constitutes a supply of services effected for consideration within the meaning of that provision”.


Although this decision may affect some employees who are members of salary sacrifice schemes, it will not apply to all of them. For instance, schemes that cover services which are exempt or outside the scope of VAT (such as pension contributions and some childcare vouchers). However, it may affect services such as “cycle to work” schemes under which employees can buy bikes at a discount.