TaxCorporate TaxVAT ruling affects salary sacrifice schemes

VAT ruling affects salary sacrifice schemes

HMRC has clarified its position on the VAT treatment of employee benefits

SALARY SACRIFICED by employees in exchange for a benefit will be treated as consideration for VAT purposes following a HM Revenue & Customs briefing paper clarifying its position.

In 2010, in a case involving pharmaceutical company AstraZeneca, the European Court of Justice (ECJ) decided that salary sacrificed by employees, in exchange for retail vouchers provided by their employer, was consideration for VAT purposes. This would affect employers that operated flexible benefits, such as the cycle to work scheme.

An HMRC update confirmed that the taxman would treat the salary sacrificed as consideration for VAT from 1 January 2012. Where the benefit is liable to VAT, then input VAT is recoverable as under normal rules but output tax will be due on the amount of salary sacrificed. According to the brief, if the benefit is of higher value to the salary sacrificed, the higher amount will be subject to VAT.

Mark Groom, tax partner at Deloitte, said that employers would have to make decisions about whether they or their employers would have to bear the cost. He added: “If the employer is not prepared to bear this cost: [it must]: review scheme design and amend terms to cover the increased VAT cost going forward; and review existing agreements with employees and decide whether benefits and/or salary sacrifice amounts should and can be amended for the balance of the period of any existing agreements.”

Related Articles

Watch out when winding up

Corporate Tax Watch out when winding up

1m Emma Rawson, ATT Technical Officer
How might Brexit affect UK tax policy?

Brexit & Economy How might Brexit affect UK tax policy?

1m Santhie Goundar
HMRC large business tax enquiry duration rises to 3 years

Corporate Tax HMRC large business tax enquiry duration rises to 3 years

4m Emma Smith, Managing Editor
‘Google tax’ nets HMRC £281m

Corporate Tax ‘Google tax’ nets HMRC £281m

8m Emma Smith, Managing Editor
OTS report: Corporation tax should follow accounts

Corporate Tax OTS report: Corporation tax should follow accounts

10m Alia Shoaib, Reporter
HMRC tax evasion assistance requests double in five years

Corporate Tax HMRC tax evasion assistance requests double in five years

11m Emma Smith, Managing Editor
Spring Budget 2017: Making Tax Digital

Business Regulation Spring Budget 2017: Making Tax Digital

1y Shereen Ali, Deputy Editor
Tax fraud loses HMRC £16bn

Corporate Tax Tax fraud loses HMRC £16bn

1y Emma Smith, Managing Editor