The Value Added Tax (Treatment of Transactions) (Revocation) Order, SI 2021/1023, revokes the Value Added Tax (Treatment of Transactions) Order, SI 1992/630, in order to ensure that the 1992 Order cannot be ‘exploited’ by government departments in order obtain a full refund of VAT on their employees’ own private vehicles.
The 1992 Order was initially introduced to avoid a conflict between the law around salary sacrifice and VAT, where employees had accepted lower wages in return for the provision of a car and which potentially led to double taxation.
The legislation on salary sacrifice has since changed, ensuring that double taxation no longer arises in circumstances where VAT recovery is restricted. The 1992 Order was therefore considered no longer necessary.
In Northumbria Healthcare NHS Foundation Trust [2020] EWCA Civ 874 the Court of Appeal concluded that the continuing effect of the 1992 Order was to treat the supply of the car to the employee as a non-business activity, resulting in a full refund under the VATA 1994 s 41 scheme, with no requirement to charge VAT to the employee. Revocation of the 1992 Order removes this possibility.
The Value Added Tax (Treatment of Transactions) (Revocation) Order, SI 2021/1023, revokes the Value Added Tax (Treatment of Transactions) Order, SI 1992/630, in order to ensure that the 1992 Order cannot be ‘exploited’ by government departments in order obtain a full refund of VAT on their employees’ own private vehicles.
The 1992 Order was initially introduced to avoid a conflict between the law around salary sacrifice and VAT, where employees had accepted lower wages in return for the provision of a car and which potentially led to double taxation.
The legislation on salary sacrifice has since changed, ensuring that double taxation no longer arises in circumstances where VAT recovery is restricted. The 1992 Order was therefore considered no longer necessary.
In Northumbria Healthcare NHS Foundation Trust [2020] EWCA Civ 874 the Court of Appeal concluded that the continuing effect of the 1992 Order was to treat the supply of the car to the employee as a non-business activity, resulting in a full refund under the VATA 1994 s 41 scheme, with no requirement to charge VAT to the employee. Revocation of the 1992 Order removes this possibility.
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