Salary sacrifice lease cars – Court of Appeal decision

22 July 2020

Liaison Financial

An important Court of Appeal decision has supported the findings of the Upper Tribunal in a case regarding vehicle leasing, which has a direct impact on the NHS.

In a case taken by Northumbria Healthcare NHS Foundation Trust, both the Upper Tribunal and the Court of Appeal found that HMRC was incorrect in imposing the 50% block on COS recovery and that Northumbria was entitled to a refund of 100% of the VAT incurred on leasing in vehicles under COS heading 26 – hire of vehicles including repair and maintenance.

Consequences for NHS organisations
The consequences of this case are that for NHS organisations that operate salary sacrifice lease car schemes:

  • The 50% block on VAT recovery should not apply – the NHS is entitled to 100% VAT recovery
  • No output tax is due on charges to employees

Action required
If you have not already done so, we encourage you to submit a disclosure to HMRC if you consider that you have claimed or paid the incorrect amount of VAT. Your Liaison Financial VAT advisor can assist you with this to ensure your claim is maximised and to help you deal with any queries arising from HMRC.

Given the particular circumstances surrounding HMRC’s past policy on lease cars, there is the possibility of submitting claims beyond the standard 4-year capped time period to October 2012.

It is possible that HMRC may seek to leave to appeal the decision to the Supreme Court, but our advice remains to submit claims to HMRC to ensure VAT savings are maximised.

Further information
If you need further information on the above announcement, please contact your Liaison Financial VAT advisor or get in touch at

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