Salary Sacrifice changes

This issue arises when an employee is paid a certain salary say, £100 but then sacrifices £10 of it to receive a benefit such  as medical cover or childcare costs paid for by the employer. The employee is then paid £90 in cash or by BACS.

As only £90 is subject to tax and national insurance there are savings which might be passed down to the employee as well.

From 1 January 2012 these benefits, that is, amounts sacrificed may be chargeable to VAT and this will normally be payable by the employer alone. In other words if the benefit is something which is normally subject to VAT then the employer will not be able to reclaim on that from 2012 onwards.

Benefits which are:                       

The rules are detailed to the extent that employers may still not be able to recover VAT when they provide their staff with some of the items in the ‘Non-Vatable column particularly on any fees paid for in providing those items.

Contact our Tax team for further details.