HMRC revises its view of VAT under salary sacrifice arrangements

Readers may recall a recent column where it was mentioned that as a result of a European judgment, the VAT element of the Cycle to Work Scheme needs to recovered from employees.

Well to add more flesh to the story, HMRC has published Brief 28/11 that sets out HMRC's revised view of the VAT implications of supplying any employee benefits via salary sacrifice arrangements.

In a nutshell, from 1 January 2012, employers operating salary sacrifice arrangements will, unless the benefits are VAT-exempt, be required to account for output tax on the amount sacrificed by the employee.

Employees in a salary sacrifice arrangement are likely to be required to give a minimum period of notice if they wish to 'opt-out' now (unless they experience a lifestyle change as recognised by HMRC).

However, in certain circumstances, it might be better for employees to leave a scheme at the end of the tax year rather than during it.

This was first published in September 2011

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