A hypothetical VAT question

A hypothetical VAT question

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So my understanding is if I sacrifice £1,000 in exchange for a benefit from my employer, they will now have to account for £200 of VAT (albeit, perhaps recovering £200 input VAT) on the supply to me of the benefit.

Which all makes sense for a VAT registered business, but say a business has a taxable turnover of £75,000 and then enters into salary sacrifice arrangements as above, for 5 employees.  Have they now exceeded the £77k?

I imagine I will never see this, but I'm curious.

Replies (5)

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By neileg
30th Mar 2012 11:05

Yes

Remember though that not all benefits are taxable supplies, some will be exempt.

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By nick farrow
23rd Apr 2012 13:29

does it help if the employer decides not to recover the VAT on a £500+VAT bike and then recovers just the £600 through salary sacrifice

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By neileg
23rd Apr 2012 13:34

No

The supply of the bike is taxable. Recovery or not of the input tax doesn't change this.

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By nick farrow
23rd Apr 2012 14:52

thanks Neil

my thinking was that given there is £100 of input tax to recover any penalty would be presumably be restricted to the VAT on any salary sacrifice in excess of the £600

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By neileg
24th Apr 2012 13:54

Not the way that VAT works

There isn't a linkage like that between input tax and output tax. If the supply is taxable and takes you over the threshhold, there's no get out of gaol card to play.

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