When did the changes in relation to the VAT treatment of taxable benefits under salary-sacrifice arrangements come into force?

Changes in relation to the VAT treatment of taxable benefits under salary-sacrifice arrangements came into force on 1 January 2012.

As a consequence of the landmark ruling in AstraZeneca UK Ltd v HMRC Case C-40/09 ECJ, where the European Court of Justice (ECJ) found that the provision of vouchers amounted to a supply of services effected for consideration, HM Revenue and Customs (HMRC) no longer differentiates between deductions from salary (amounts taken from post-tax pay) and salary-sacrifice schemes (revised contractual arrangements representing a reduction in salary before it is treated as received for PAYE tax purposes), where there is a supply of goods and/or services by the employer.

Employers providing benefits in kind under a salary-sacrifice scheme must account for output tax (the amount charged on sales) on these supplies, where they are subject to VAT. Prior to the ECJ judgment, HMRC accepted that a reduction in salary did not constitute consideration for the benefits received and output tax was not due.

Although the judgment was delivered on 29 July 2010, HMRC required output tax to be accounted for only on taxable benefits provided under salary-sacrifice schemes from 1 January 2012, to allow employers sufficient time to make the necessary administration and accounting changes.