HMRC has announced changes to the VAT treatment of salary sacrifice schemes. The changes are effective from 1 January 2012 and could increase the overall cost of the scheme.

Salary sacrifice schemes allow employees to forgo part of their salary in return for a benefit. Traditionally this was used for pension contributions, however, it was extended to include bicycles, childcare, high street shopping vouchers, mobile phones and travel passes.

From 1 January 2012 employers providing such benefits must account for VAT on salary deductions for supplies that are subject to VAT.

As childcare is exempt the supply of childcare vouchers will not be affected.

HMRC has confirmed that the change is limited to VAT and there is no change to the direct tax treatment of the schemes.

Whilst the requirement to account for VAT will result in an additional cost to the employee or employer, it does mean that the VAT incurred by the employer will be recoverable in full. Historically, some employers were not able to recover allthe associated VAT they incurred.

Contact:

Scott Craig, VAT Partner

Staff secondments – Have you got VAT covered?

In the current economic climate there is huge pressure for public services to be efficient. In practice many organisations are seconding staff both to and from organisations to reduce their payroll and staff commitments.

As the public sector interacts with the voluntary/charity sector there is often confusion over the VAT liability of seconded staff.

Ordinarily, the provision of staff is liable to standard rate VAT. VAT is normally charged on the entire payment (salary, NI, pension and any mark up) made/received.

If a secondment takes place between two charities or not-for-profit organisations the payments can be outside the scope of VAT as long as the secondee performs non-business duties for both organisations and the member of staff’s payroll costs are recharged without any mark up.

This rule does not apply to local authorities and public bodies. That said, in certain cases secondments between Government departments and public bodies do not attract VAT.

For example:

•The supply of teaching staff between educational bodies.
•The supply of policing or fire assistance between relevant forces.
•Where staff are released not seconded.
•Where staff have separate and discrete employment contracts.

Contact:

Edinburgh

Scott Craig, Partner, VAT
Alan Glen, Manager, VAT

Tel: 0131 473 3500

Glasgow

Tony Cochrane, Manager, VAT

Tel: 0141 567 4500