VAT on Childcare Voucher salary sacrifice schemes

From the 1st January 2012,  there are changes to the treatment of VAT on salary sacrifice schemes.

If you offer Childcare Vouchers on top of an employee's existing salary, then the following does not apply.

Childcare Vouchers themselves do not attract VAT, however VAT is applied to the service charge paid by companies for us to administer the scheme.  Prior to the 1st January 2012, companies who are VAT registered were able to reclaim this VAT.  However, a ruling on a case involving AstraZeneca from the Court of Justice of the European Union means that this VAT is no longer fully recoverable.

http://www.hmrc.gov.uk/briefs/vat/brief2811.htm (4.3)

What this means in practice, is that for new employees or employees that joined the scheme after the 27th July 2011, you will no longer be able to reclaim the VAT that is applied to the service charge (if you do so currently), instead, it will be subject to partial reimbursement.

For those on the scheme on or before the 27th July, you will be able to reclaim the VAT until:

• The date that a fixed term agreement expires
• The date of an employee's annual salary/benefits review
• The date of any other review or renegotiation that leads to a change in the provision of benefits under a salary sacrifice agreement or to a change in an employment contract.

http://www.hmrc.gov.uk/briefs/vat/brief3611.htm

In some cases the amount of VAT will be so small, that 'de minimis' rules will apply.  This is where the amount is deemed insignificant and may be deducted.

In general the savings from Employer's National Insurance will still far outweigh any costs of administering the scheme.

As we cannot give tax advice, we would recommend speaking to your accountant about this to find out if you are affected and ensure you are applying the correct VAT.