VAT treatment for salary sacrifice arrangements

Produced by Tolley in association with Robert Woodward

The following Employment Tax guidance note Produced by Tolley in association with Robert Woodward provides comprehensive and up to date tax information covering:

  • VAT treatment for salary sacrifice arrangements
  • VAT treatment

VAT treatment for salary sacrifice arrangements

VAT treatment

Since 1 January 2012, all new salary sacrifices where the underlying benefit provided is liable to VAT must at least equal the VAT-inclusive cost of the benefit, otherwise the employer cannot claim the input VAT.

This does not apply to all benefits as some are VAT-exclusive (eg pensions), or are specifically excluded from these provisions (eg company cars). In addition, not all employers can claim input VAT due to the services / goods they provide.

The background to the change followed the ruling by the European Court of Justice in the case brought by HMRC against Astra Zeneca. In short, the European Court of Justice decided that the supply of retail vouchers to employees will be considered to be a supply for VAT purposes. This means that, where employers have recov

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