On 30 November 2020, HMRC announced (Revenue and Customs Brief 19 (2020) VAT-repeal of the VAT (treatment of transactions) Order 1992) they intend to repeal the VAT (treatment of transactions) Order 1992.
This followed their unsuccessful case v Northumbria Healthcare NHS Foundation Trust concerning VAT on Salary Sacrifice Lease Cars (SSLC) after the Court of Appeal interpreted the Order 1992 in such a way that the supply of the SSLC was a non-business activity. This allowed an NHS Trust to reclaim the Input Tax in full under the UK’s VAT refund scheme for Public Bodies (Section 41 of the VAT Act 1994) and no requirement to pay over Output Tax on the employee’s salary sacrifice collections, something HMRC feel is contrary to the purpose of the VAT System.
HMRC have now confirmed (here) the above measure to repeal VAT (Treatment of Transactions) Order 1992 will now officially take effect from 21 October 2021.
For now, Public Bodies can continue to benefit from full VAT recovery whilst the supply of SSLC remains a non-business transaction, however from 21 October 2021 they will be required to revert to reclaiming VAT to the same extent as commercial entities.
If you have any concerns or would like to discuss this change further then please contact us here