A VAT case in 2022 has presented a potential opportunity for charities which provide vouchers to employees.
In the GE Aircraft Engine Services (GEA) case, the Court of Justice of the European Union (CJEU) concluded that the issue of vouchers under an employee recognition programme did not constitute a deemed supply for VAT purposes.
The case concerned vouchers awarded to high performing employees under an employee recognition programme called “Above & Beyond”. Under the programme, any employee could nominate any other employee for acts which she or he considered deserved special recognition, in accordance with the requirements of the programme.
The Above & Beyond programme was designed and implemented to encourage and reward excellent work and better behaviours by employees as a reward for their performance. The employees could then choose vouchers from a range of retailers from which to purchase goods or services.
The VAT dispute
HMRC had argued that GEA should have accounted for output tax on the value of the vouchers on the date of issue to each employee. This was on the basis that the vouchers were used for private purposes by the employees. GEA argued that the vouchers were issued solely for the purpose of its business to incentivise high performing employees.
The CJEU considered that GEA had a clear business motive for providing the vouchers (ie to incentivise its employees), with no deemed supply being made to employees and, therefore, no output tax was due on issue of a voucher to an employee.
How has your organisation incentivised staff?
Where charities have given away services or vouchers to employees free of charge, where there is a ‘business’ purpose for the gift (such as to increase employee-productivity they should review the VAT treatment they have applied.
In the right circumstances, it may now be possible to make a VAT claim, eg if output VAT has not been charged/accounted. For rewards other than vouchers this would cover the past four years and could include things such as TV subscriptions, spa days, gym membership etc. For vouchers, the VAT treatment can be reviewed for those given away before 1 January 2019 (after which the voucher rules changed), or Single Purpose Vouchers (SPVs) given to employees after this date.
How BDO can help
Whilst this development may not actually be of benefit to many charities, in itself, it is an indication that vouchers, when they arise in any business, including the not-for-profit sector, can have important and sometimes complex VAT treatments and implications.
BDO have an experienced team of specialist who can assist your organisation in meeting the VAT requirements. If you need any assistance, please speak with you usual BDO contact or get in touch with Jim Gempton.
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