Salary Sacrifice - Big Changes
After over a year of waiting following the European case of Astra Zenica, HMRC have finally given their opinion as to how the VAT treatment is to apply to salary sacrifice arrangements. Previously HMRC had drawn a distinction between goods & services supplied to employees by way of a deduction from salary and those provided under a salary sacrifice mechanism, with the latter not necessarily giving rise to a VAT charge.
So what has changed?
With effect from 1st January 2012, there will be NO distinction and VAT will be due on the value of the benefit to or the amount of salary foregone by an employee, to the extent that the nature of the benefit would ordinarily be subject to VAT.
