Employee rewards and perks are dealt with in HMRC’s manual VIT43700 (https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit43700). Here it explains that services provided to staff can be a legitimate business expense if they are provided mainly to reward or motivate staff. If so, the VAT incurred is all input tax. No apportionment under section 24(5) of the VAT Act 1994 is necessary. In some cases, a charge to output tax for private use may have to be made under the Supply of Services Order. However, HMRC goes on to say:
“Where facilities are provided to all employees strictly for the purposes of the business it is generally not our policy to apply such a charge. However, perks provided to specific individuals within a business should generally be subject to an output tax charge to reflect private use.”
Specific guidance on recreational facilities can be found at VIT43950 (https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit43950) and here it is confirmed that where sports and recreational facilities are available to all employees, the VAT incurred on the cost of providing the facilities is input tax. Again it is not HMRC’s policy to apply the Supply of Services Order. If any charge were to be made then output VAT would be due on that amount.
With regard to staff meals (VFOOD5060 https://www.gov.uk/hmrc-internal-manuals/vat-food/vfood5060); paragraph 10 of Schedule 6 of the VAT Act 1994 specifically refers to the provision of food and drink in the course of catering by an employer to an employee. Where such supplies are made, the value of the supply is the monetary consideration alone, if any, paid by the employee. So where an employee pays for a meal, snack or drink, the supply is standard-rated and the value of the supply is the amount paid. Where an employee is not required to pay for a meal, snack or drink the value of the supply is nil and no VAT is due.
Additionally for completeness, following the judgment of the CJEU in Astra Zeneca (Case C-40/09), where employees pay for benefits under a salary sacrifice arrangement, employers must account for VAT on the value of the supplies unless they are exempt or zero-rated. Subject to the normal rules, the employer can continue to recover the VAT incurred on related purchases. Equally where deductions are made from a salary for the benefits, the value of the supply is the amount deducted.
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