Salary Sacrifice – VAT changes

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As from the 1st January 2012, HMRC will be introducing changes to the VAT treatment of certain salary sacrifice benefits.

Action will be required if you are providing the following benefits under salary sacrifice arrangements:

  • Cycle to work
  • Gym membership
  • Mobile phones
  • Retail vouchers

(Please note this list is not exhaustive)

Action will also be required if you are paying a service charge to a third party to administer salary sacrifice benefits whether or not the benefits are otherwise affected by the new VAT rules.

The following benefits provided under salary sacrifice arrangements are not affected by the new VAT rules:

  • Childcare vouchers
  • Healthcare membership
  • Pensions
  • Season ticket loans
  • Workplace gym

(Please note this list is not exhaustive)

Consequence of the new rules:

1.  For benefits caught by the new rules, if you currently recover the VAT incurred on the purchase of benefits you will either have to:

i. Stop claiming the VAT on the purchase of benefits; or

ii. Start to charge your employee VAT on the sacrificed salary; this would require
             a renegotiation of the terms of the scheme with each employee (see Note, below).

In either case, additional cost will be added to the scheme which will impact its overall efficiency.

2.  Where you pay a third party to administer a salary sacrifice arrangement you will need to consider if your business can claim the VAT charged on the administration fee.

Note: 

Agreements signed on or before 27th July 2011 where the term of the agreement goes beyond 31st December 2011, will not be effected by the new VAT rules until the earlier of;

  • the date the agreement expires;
  • the date the employee’s annual salary and benefits are reviewed;
  • the date that any other review / re-negotiation of the benefits takes place;
  • or a change of contract;

 

Hannah Cooper
15 December 2011

 

                                                                                                                                                                                                                                                                                                                                  
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About Throgmorton: Throgmorton is one of the leading companies specialising in the provision of financial and administrative outsourcing to the UK SME financial services sector.

The information in this notice is intended for general guidance only. Throgmorton does not accept any responsibility for losses incurred to any person acting or refraining to act as a result of the information in this notice. Advice should be taken in the context of specific circumstances.

Copyright 2010 Throgmorton UK Limited. All rights reserved. Throgmorton is a trading name of Throgmorton UK Limited a company registered in England and Wales (company no 3853848) having its registered office at 4th Floor, Reading Bridge House, George Street, Reading, Berkshire, RG1 8LS.