A recent European Court of Justice ruling, means HMRC now consider that the provision of a benefit via salary sacrifice to employees constitutes a supply of services for consideration and is therefore subject to VAT.
Benefits that will be affected include:
- Cycle to work schemes
- Face value vouchers
- Childcare vouchers
- Food & catering provided by employers
To give employers time to make the necessary changes to their record keeping HMRC will not require output tax to be accounted for on salary sacrifice supplies until 1 January 2012.
Paul Heaven, Managing Director, Blue Sky Corporate Finance, commented on the ruling: “This is yet another disappointing example of red-tape and bureaucracy getting in the way of a good idea almost certainly rendering the incentives as non-viable for the vast majority of SME employers. It is impossible to argue that the Cycle to work scheme is not a great idea to encourage employees to get healthy and save the planet. It is also a given that the adoption of the Childcare voucher scheme is the act of a caring and flexible employer. Then along comes the bureaucrats to torpedo the idea for most SME’s. What they are effectively saying is “we are pleased to see that you are contemplating these helpful schemes that meet Government objectives but please don’t forget to record details of them on the end of year P11D for each employee concerned, don’t forget to deal with the Class 1A NIC implications ………oh and by the way you need to alter your quarterly VAT return for the VAT on the notional value of the benefit in kind”…………….In short forget it unless you have a sizeable accounts department that can keep track!.”
To find out more on the HMRC VAT changes click here
