VAT due on employee benefits from January
VAT due on employee benefits from January
HMRC has now issued guidance regarding VAT on certain employee benefits under flexible benefit and salary sacrifice schemes following the high profile case involving pharmaceutical giant AstraZeneca last year.
The background
AstraZeneca's case, which went before the Court of Justice of the European Union (CJEU) in 2010, concerned the VAT treatment of high street shopping vouchers provided to employees as one of the options under a salary sacrifice scheme.
The company had previously bought the vouchers with VAT included and then recovered the tax before giving them to staff. The court found, however, that giving staff vouchers that could be used to buy goods and services amounted to a 'supply of services for consideration'. So, whilst Astra Zeneca won its case to reclaim the VAT incurred on acquiring the vouchers, output tax was due on the amount of salary sacrificed by the employees.
The changes
Although the case specifically concerned the correct VAT treatment of high street shopping vouchers provided to employees under a flexible remuneration package scheme, the implications were deemed applicable to other supplies of goods and services to employees. The ruling, therefore, led to a change in the VAT rules for all UK businesses as clarified by HMRC in the Revenue & Customs Brief 28/11.
Why is it important?
Businesses that provide retail vouchers and other benefits to employees under salary sacrifice and flexible benefit schemes (such as bicycles, cars and mobile telephones) should review their arrangements to ascertain their historical VAT position and decide how they want to deal with any additional VAT liability going forward.
It may also be possible to restructure the schemes to avoid additional tax liability but advice should be sought on the best way to do this. Particular care should be taken before making any changes during the scheme year.
These changes should not affect pension contributions and childcare vouchers, which are exempt from VAT.
When is it effective?
The changes on input VAT recovery and output tax charges will not come into effect until 1 Jan 2012 so businesses still have some time to review their employee benefit schemes.
Submitted by MSB Accounting on Monday 12th September 2011