New VAT Rules Affect Salary Sacrifice Schemes

New VAT rules regarding salary sacrifice schemes came into force in early 2012. The change has come about as a result of a briefing note issued by HM Revenue and Customs. The change follows the decision of the ECJ in the case of AstraZeneca v. HMRC, which we wrote about in October 2010.

Broadly, employers providing benefits under arrangements, which qualify as salary sacrifice schemes for VAT purposes, must account for output VAT on these supplies, where they are subject to VAT. We would advise you to read the briefing note, which is relatively clear and comprehensive and considers the effect on various typical salary sacrifice schemes.

Further guidance provides that the Revenue will not require an employer to implement the changes for pre-existing arrangements in certain circumstances.

For advice on how this change might affect your business, please contact Jaspal Pachu ( or Emma Bailey (, tax specialists at Fox Williams LLP.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.