Welcome to Blick Rothenberg's VAT:alert. This regularly updated page contains timely information on VAT issues that might affect your business.
December 2011
VAT due on Salary Sacrifice Arrangements (“SSA”)
With effect from 1 January 2012 businesses will need to account for VAT on the amount given up under a SSA in return for any taxable goods or services.
This change follows a ruling by the European Courts and it brings SSA into line with employee payments made by deductions from salaries which have always been subject to VAT.
As a result the overall cost of the benefit will increase and employers will need to consider whether the VAT is passed on to the employee in the form of a higher salary sacrifice. Although the changes come into effect on 1 January 2012, HMRC has announced transitional arrangements which apply to agreements in place before 28 July 2011 allowing VAT free treatment until those agreements expire or are reviewed.
Input VAT will continue to be recoverable on the cost of the benefits provided by most businesses. However, output VAT will now be payable on benefits such as cycle to work Schemes, gym facilities, face value vouchers and catering unless these are provided free to all employees.
Childcare vouchers are not directly affected as the supply is exempt from VAT. However, where the business incurs VAT on the management or administration of a child care voucher scheme the input VAT may be restricted under the partial exemption rules.
In short, these changes make SSA more costly in terms of actual tax and more time consuming to administer.
Inward Processing (IP) Bills of Discharge
If you are involved in importing goods for inward processing, HMRC has reminded businesses that a Bill of Discharge (form C&E812) must be completed and submitted within 30 days of the relevant period.
Failure to submit these forms by the due date may result in HMRC charging Customs Duty and VAT on the imported goods even if they have been subsequently re-exported.
Channel Island imports - loophole to close?
The practice of importing low value items via the Channel Islands in order to avoid VAT looks likely to be blocked by the UK Government.
The Chancellor has announced that the current £15 VAT free limit will be scrapped from 1 April 2012 for all imports coming from the Channel Islands. This action is being taken to end the exploitation of the Low Value Consignment Relief (“LVCR”) that applies to goods imported from outside the EU. In recent years there has been a significant increase in businesses setting up warehousing operations in the Channel Islands to take advantage of this relief.
There are no plans at present to extend this action to other non-EU countries which raises the likelihood of a challenge on the grounds of discrimination. A case therefore of “watch this space”.
Ireland and other EU VAT rates on the rise
Following increase in the VAT rate for a number of countries in 2011, notably the UK, various other EU Member States have made announcements for increases in 2012.
The standard rate of VAT in Ireland is due to rise from 21% to 23% on 1 January 2012.
Italy has also announced a similar increase in 2012, probably in September, although it may be reversed if economic conditions improve.
Cyprus has confirmed plans to raise its standard rate from 15% (currently the lowest of the EU’s standard rates) with effect from 1 March 2012.
Hungary announced plans to increase its standard rate from 25% (the highest rate in the EU) to 27% sometime in 2012. It has also asked the European Commission if it can introduce a higher level of 35% for certain luxury goods.
The French reduced rate of 5.5% will rise to 7% on 1 January 2012.
If you would like to be alerted by email when we refresh this page with key updates on VAT, please
email us.