Considerations for employers – the VAT implications for employee benefits

1 March 2012 |

Employers need to carefully consider the cost implications of providing benefits in kind to employees following the introduction of VAT on several benefits offered via salary sacrifice from 1 January 2012.

Additional costs for employers

As a result of a recent decision made by the European Court of Justice, with effect from 1 January 2012 employers will incur additional costs due to VAT being imposed on certain benefits provided under a salary sacrifice arrangement. This change will not affect employees who have salary sacrifice agreements that were signed or otherwise agreed on or before 27 July 2011. However it will apply from the date when an employee’s benefits or contractual terms change.

The change does not apply to benefits which are exempt from VAT such as private medical insurance and dental plans, pension contributions and company cars. Childcare vouchers are also exempt from VAT. However, it may now not be possible to recover all of the VAT charged relating to administrative expenses incurred by the employer in providing the vouchers.

Commentary

Employers should review their employee benefit packages and consider whether they should bear the additional costs or pass them on to their employees.

For further information or to discuss the issues raised, please contact or John Mooney or Guy Abbiss on +44 (0) 20 3051 5711.

Disclaimer

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

Circular 230 disclosure

To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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