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Employer - Childcare Vouchers - VAT Changes

New employer VAT changes appear to make VAT on the Service Charge element unrecoverable. However this will not be the case if:

  • You run an addition to salary scheme rather than salary sacrifice scheme.
  • Your business does not already have to carry out a Partial Exemption Calculation and your input tax (VAT on purchases) is less than £625 per month for non-directly attributable costs ( i.e. you can exclude VAT on goods for resale) and the vouchers supplied to your staff are not more than 50% of your sales in the month.

For the generally larger businesses that the “de minimis” levels do not apply to our competitive service charge levels ensure that the childcare vouchers scheme costs are still more than covered by the Employer NI Savings.

Further Details

From January 2012 the rules apply to the reclaiming of VAT associated with the service charge on the provision of childcare vouchers has changed.

Whilst childcare vouchers themselves are exempt from VAT, administrative fees from the voucher providers which an employer has previously been permitted to recover VAT on as a general business overhead now need to be treated differently.  As the fees are directly attributable to the exempt supply of vouchers the normal partial exemption rules must be applied with the result that the VAT incurred may no longer be fully recoverable.

There are different rules depending on when the voucher scheme came into existence.

Voucher schemes in existence prior to the 28th July 2011

The VAT rules of allowing full recovery can stay in place until one of the following occurs:

  • The date that a fixed term agreement expires or the fixed number of salary sacrifice payments specified within the agreement are completed
  • The date of an employee's annual salary/benefits review. This will be the case even if the employee continues to receive the same taxable benefits as before the 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.

This may mean that the VAT treatment on the service charge element may be different per employee.

Voucher schemes introduced after the 27th July 2011

And where the scheme is no longer valid due to a review of contract or the end of a fixed period of sacrifices the normal partial exemption rules must be applied with the result that the VAT incurred may no longer be fully recoverable.

For some employers who do not already have to perform a partial exemption calculation the amount of VAT will fall within the “de minimis” limits which allow businesses to deduct the element of their input tax that would otherwise not be deductible so long as it is insignificant.
The current de minimis level is set at

  • £625 per month of input tax on overheads ( goods that are for resale can be excluded from this calculation)
  • Vouchers must not be more than 50% of the supplies each month

For the generally larger businesses that the “de minimis” levels do not apply to our competitive service charge levels ensure that the vouchers scheme costs are still more than covered by the Employers NI Savings.

Useful Links

HMRC - VAT Changes Information
http://www.hmrc.gov.uk/briefs/vat/brief2811.htm
http://www.hmrc.gov.uk/manuals/pemanual/pe4050.htm

If you require further information on the VAT changes please email finance@busybeesbenefits.com

The above sets out our general guidance on the VAT changes in relation to Childcare Vouchers and employers, if you require specific advice please contact your accountants.