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VAT and Childcare Vouchers
This doesn't fit with the family friendly policies we are all required to embrace
Childcare voucher unaffected - apparently
according to the HMRC link in the article to the new guidance para 4.3 states childcare vouchers are unaffected. So they will remain a VAT exempt supply from voucher supplier, therefore remain a VAT exempt supply to the employee. So it's still a worthwhile benefit - for the moment!
The childcare vouchers trap
The supply of childcare vouchers will be an exempt supply to the employees. Sounds OK if you are an exempt business like a bank or insurance company. But what if you are currently fully VATable? From next year the supply of childcare vouchers to your employees makes you partially exempt for VAT purposes! Firstly, you will no longer be able to reclaim the VAT on the voucher supplier's charges, probably not a significant amount, but if you have a large workforce receiving such vouchers it could affect your overall ability to recover VAT on the rest of your business! Not likely to affect your or my clients but some big multi-nationals might have to do some careful sums!
What I don't get about this ...
... is how it ever got as far as the Tribunal.
If HMRC historically allowed input VAT recovery on the costs of the scheme, and treated the provision of the vouchers to the employee as not being a supply (or being a supply outside the scope), why did they resist Astrazeneca's claim in the first place?
Had they already announced a change of policy, and this was the test case? None of the commentary I have seen says so but maybe I have missed something.
Retail vouchers, anyone?
I'm surprised the company offered retail vouchers through its salary sacrifice scheme anyway. They were always subject to income tax, and when the NIC saving was removed (over 10 years ago?), the only remaining advantage was the discount offered by the retailer. Surely a VAT charge must be the death of retail voucher schemes, as no retailer will offer a discount equal to the VAT charge.
I had the chance to take some several years ago, but just after my employer announced the scheme, the NIC saving was done away with. I reckoned that the benefit was then outweighed by the inflexibility of having to take a fixed amount of vouchers every month and the hassle. There were some hoops to jump through, though I can't remember what they were now. Even if you knew you would be able to spend significant sums every month, e.g. supermarket vouchers, it just wasn't worth it.
Cycle to work schemes
Ok, so I think I see where we are going with childcare vouchers - not an issue for the employee but potential implications for the employer in terms of VAT recovery on the admin fees with wider implications for VAT status in some extreme cases. But, having read the HMRC guidance I am still confused about the cycle scheme effect. We have loads of clients operating these schemes...So, employer now has to account for the VAT on the value of the salary sacrificed - 1st question - grossed up or inclusive? In other words, if the monhtly sacrifice is £40 is the accountable output VAT £6.67 or £8.00?
Secondly - if the amount is gross up, is this simply suffered by the employer - i.e. not levied against the employee? Clearly, if it is already treated as gross there is no effect for the employee; just an additional cost to the employer...either way the employer loses out and to a greater extent than any NIC saving that the plan originally delivered to the employer. So that will be the end of that then - won't it?
green commuter policy???
Given the increase in cost of the cycle to work scheme from Jan 2012, what is the most tax efficient way of offering to all employees the opportunity to use a bicycle provided by a Vat registered Ltd Co as a "qualifying" non taxable benefit to the employee?
Is it still via the Cycle to work scheme? or should the company purchase the bicycles and provide use without salary sacrifice?
I am looking to establish such a policy and am now confused as to the best way forward