In this update, we report on the forthcoming changes to the tax
treatment of salary sacrifice arrangements with effect from 1
January 2012.
Over a year ago, in the case of AstraZeneca UK Limited v
HMRC, the European Court of Justice (ECJ) held that VAT was
due on the amount of salary sacrificed by employees in exchange for
high street shopping vouchers. As a result of this decision, HMRC
has indicated in its recently published Revenue & Customs Brief
28/11 that VAT must be accounted for on amounts of salary
sacrificed by employees in exchange for relevant benefits from 1
January 2012.
VAT: How It Works
VAT is a tax charged on most supplies of goods and services.
Every VAT registered business is effectively a tax collector: a VAT
registered business must account to HMRC for the VAT its charges on
its supplies (output VAT). However, it can generally recover the
VAT that it pays on its purchases (input tax).
