Recently released information on the long-awaited VAT guidance in regards to salary sacrifice schemes indicates that employers will need to hurry to completion a revamping of arrangements made with employees. Many of these changes will add extra VAT costs which employers will need to evaluate whether to pay or pass on to employees.
It is well known that the newly revised VAT guidance is the result of a case in the European Court of Justice that ruled VAT must be paid by AstraZeneca for shopping vouchers purchased on high streets. These vouchers were purchased as part of an employee salary sacrifice agreement. Even though they will need to account for VAT, they are likewise entitled to claim back VAT paid on these specific purchases.
The new VAT rulings go into effect on 1 January of the new year, 2012, meaning that employers only have four months to re-evaluate their salary sacrifice schemes. Stand-alone arrangements will pay additional costs and another ruling will mean that VAT is payable on the monthly salary that has been sacrificed. These are areas which will need to be reassessed by employers as to just who will bear the responsibility for paying VAT.
On the other hand, there are also benefits which will not be affected. If the employer suffers either 50% or 100% VAT on leased or purchased company vehicles, the new guidance is unchanged. VAT exempt benefits will remain exempt but any fees incurred such as administrative fees will not be able to be recovered.
Further information is available on the HMRC website. Employers and employees in the UK are recommended to familiarise themselves with the new salary sacrifice guidance released by HMRC to better prepare for the effective date 1 January. If benefits packages will be affected by new VAT rules, it is imperative to renegotiate before the rulings take effect.
