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September 2011

VAT on salary sacrifice schemes

As HMRC clarifies its position on the treatment of VAT for salary sacrifice schemes, employers need to re-evaluate their options, in particular for childcare vouchers and cycle schemes

HMRC has announced its new policy that amounts given up under salary sacrifice schemes are to be treated as consideration for a supply by the employer eliminating the distinction between a salary deduction, which has always been treated as consideration for a supply, and a salary sacrifice.

The new policy, which takes effect from 1 January 2012, gives employers four months to review the terms of salary sacrifice arrangements and the impact the changes have on their particular schemes.

Whilst salary sacrifice schemes remain attractive and continue to be taken up by employers and employees it is vital that businesses seek advice on the VAT and tax implications now so that any strategic planning action can be taken in advance of the changes.

If you want to discuss this in more detail, contact us.