Revenue & Customs Brief
VAT: further guidance on the treatment of supplies made by employers under salary sacrifice arrangements on or after 1 January 2012
1.This brief provides further guidance to assist businesses with the
implementation of changes to VAT accounting in relation to salary sacrifice
announced in Revenue and Customs Brief 28/11 on 28 July 2011.
2.Salary sacrifice agreements in place before 28 July 2011 which extend
beyond 31 December 2011
For salary sacrifice agreements that were signed or otherwise agreed
by the parties on or before 27 July 2011 and which extend beyond 31 December
2011, HM Revenue & Customs (HMRC) will allow amounts of salary foregone
in return for taxable benefits to 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
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.
3. Salary sacrifice agreements entered into on or after 28 July 2011
For agreements entered into on or after 28 July 2011 VAT must be accounted
for in accordance with the guidance in Revenue and Customs Brief 28/11.
With effect from 1 January 2012 VAT will be due on amounts of salary foregone
in return for taxable benefits.
For further information and advice contact the VAT Helpline on Tel 0845
Issued 3 October 2011