In Revenue & Customs Brief 36/11 HMRC has announced a concession with regard to VAT on salary sacrifice arrangements for agreements in place at 28 July 2011.
In Revenue and Customs Brief 28/11, HMRC announced that VAT must be accounted for on taxable benefits received under all salary sacrifice schemes from 1 January 2012. It has now modified this requirement as follows:
Where a salary sacrifice agreement is in place before 28 July 2011 and extends beyond 31 December 2011, taxable benefits continue to be free of VAT until:
- The date that a fixed term agreement expires or the fixed number of salary sacrifice payments specified within the agreement are completed (if the agreement expires before 1 January 2012 any agreement subsequently entered into should follow the VAT treatment described in section 3 below).
- The date of an employee’s annual salary/benefits review. HMRC will regard any salary sacrifice arrangements put in place after that date as a new agreement for VAT purposes which should follow the treatment described in section 3 below. This will be the case even if the employee continues to receive the same taxable benefits as before the review.
- The date of any other review or renegotiation that leads to a change in the provision of benefits under a salary sacrifice agreement or to a change in an employment contract.
Following one of the above events VAT will be due on any taxable benefits provided on or after 1 January 2012 by way of salary sacrifice.
For salary sacrifice agreements entered into on or after 28 July 2011; VAT will be due from 1 January 2012 on amounts of salary foregone in return for taxable benefits.
Further reading: see Salary Sacrifice Schemes