Published on Tuesday, 20 September 2011 00:00
A change in approach by HMRC may impact those companies who provide a range of benefits to their employees via salary sacrifice. This change was prompted by a case brought before the Court of Justice of the European Union, regarding a company who provided vouchers to its employees as part of its remuneration package. The judgement in the case was such that the goods and services provided to employees as part of their benefits will now come under scrutiny from a VAT perspective.
Any goods and services that are ‘given’ to employees, i.e. the employee does not pay for them in any way will not be subject to VAT provided that the goods and services are available to ALL employees.
Let’s give you a couple of examples:
- If a company has their own gym facilities, they can recover the VAT incurred in providing the gym facilities. If all the staff have access to the facilities without having to pay anything or agree to any salary sacrifice the company does not have to charge VAT on delivering the service to its employees.
- If an employer provides a cycle to work scheme whereby they provide bicycles to staff in return for a sacrifice of their salary then the following applies. The company may recover VAT incurred in the purchase of the bicycles, however the new ruling requires the employer to recover output VAT based on the value of the salary forgone by the employee in exchange for the hire or loan of the bicycle.
- Another common reason for the implementation of a salary sacrifice is the provision of childcare vouchers. Childcare vouchers are not affected by this judgement as they are not subject to VAT. Employers who incur administration fees in providing the vouchers have historically been able to recover the VAT. The new ruling however means that partial exemption rules should be applied meaning that the VAT may no longer be fully recoverable.
If you are not sure as to the impact this may have on your business, then give the team a call at Opus Accounting on (01635) 884270 or email info@opusaccounting.co.uk and we will get back to you.
