Salary Sacrifice - VAT Changes

HM Revenue and Customs (HMRC) have announced that, from 1 January 2012, supplies made by employers under salary sacrifice schemes (schemes whereby an employee accepts a lower salary in return for receiving certain benefits) will be treated as taxable supplies made by the employer and that output VAT will have to be accounted for as appropriate.

The revision follows a recent decision of the European Court of Justice that retail vouchers supplied to employees under a salary sacrifice scheme were taxable supplies. HMRC have indicated that they will regard all such supplies (not just retail vouchers) as taxable at the appropriate rate of VAT.

Businesses using such schemes are advised to consider the impact that the change in practice will have on them.

Click here for a guide to tax-free perks that can be offered to employees.