VAT and Salary Sacrifice

The decision by the ECJ in the case of Astra Zeneca UK Limited v HMRC has had wide ranging implications for all businesses which offer employees benefits in return for salary sacrifices. The case revolved around the supply by Astra Zeneca to its employees of high street vouchers in return for a salary sacrifice. Prior to this case HMRC’s policy was that salary sacrifice did not count as consideration for benefits and therefore VAT did not apply. The ECJ has ruled that salary sacrifice does constitute consideration and therefore the supply of goods or services will attract VAT.

In its briefing note of 28 July 2011 (28/11)*, HMRC confirmed that it would apply the ECJ decision for salary sacrifice schemes with effect from 1 January 2012. Whilst the ruling applies to all salary sacrifice schemes the briefing note mentioned some schemes in particular where employers need to be careful about the implementation of the new ruling. These include:
• Cycle to work schemes
• Face Value vouchers
• Childcare vouchers
• Food and catering provided by the employer
• Benefits provided without consideration being payable
• Motor vehicles

More recently HMRC have given employers some leeway in implementing VAT for salary sacrifice schemes. Its briefing note of 3 October 2011 (36/11)** has listed a set number of circumstances in which employers may delay the accounting for VAT. These only apply to schemes which were in existence on or before 27 July 2011 and which are due to run past 1 January 2012. HMRC have confirmed that these schemes may continue to run free of VAT until the earliest of:
• A fixed term or fixed number of payments agreement expires
• The date of an employee’s annual salary review
• The date of any other review or renegotiation including changes in an employment contract

As tax mitigation specialists Newshams are able to give advice on how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce your tax costs or e-mail us at and we’ll get straight back to you.
07 October 2011


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