Changes made by an employer to facilitate a salary sacrifice scheme are not a supply within the scope of VAT.
The employment agency Pertemps gave its temporary workers a choice between being paid:
- a salary inclusive of travel and subsistence expenses, or
- participating in what it called the Mobile Advantage Plan (MAP). Under this they received a salary reduced by the actual travel and subsistence expenses which were paid separately. The salary was also reduced by a fixed amount of 50p or £1.
The latter was the more attractive as the payment of expenses avoided income tax and national insurance. Even after the deduction of 50p or £1, they were better off.
HMRC argued that these payments of 50p or £1 were the supply of a service by the company to its employees.
The tribunal found that it may have been, but this was not an economic activity. Pertemps were merely acting in their capacity as employer.
The case report can be downloaded from here.
Pertemps Ltd  TC 6583 [19.08]