Loughton-based chartered accountancy firm Haslers is advising businesses which offer a ‘salary sacrifice’ scheme to employees of changes to the way these benefits are taxed.

A salary sacrifice is when an employer provides benefits such as childcare or retail vouchers or the loan of a bicycle for travelling to work to employees in exchange for a reduction in their salaries.

Until recently, these arrangements have been immune from VAT. However, new rules which came into force last month (January) mean that VAT is now due on a salary sacrifice where this is a payment for a ‘taxable supply’ to the employee.

The rule change follows the case of Astra Zeneca in 2010, in which the European Court of Justice ruled that the salary sacrificed by the pharmaceutical company’s staff in return for retail vouchers was ‘payment’ for a supply by the employer to the employee and was potentially subject to VAT.

Debra Dougal, VAT partner at Haslers, said: “Although benefits such as childcare and pensions are not subject to VAT, HM Revenue and Customs will treat the deductions in salary made in exchange for them as exempt supplies, meaning there may be implications when trying to recover VAT on any administrative costs related to these supplies.”

For further information, please contact us.