Childcare Vouchers – VAT changes effective 1st January 2012

Childcare Vouchers From 1st January 2012, for VAT purposes, employee benefits which are provided through salary
sacrifice will be treated as a supply (sale) of goods or services from the employer to their employees.
VAT will be due on this sale in the same way as if the employer were selling the goods or services to
the general public. Childcare Vouchers, however, are VAT exempt (an exempt supply), so the
ruling will not have any effect on the vouchers themselves.

Service Charges for the provision of Childcare Vouchers

Service charges payable for the provision of childcare vouchers may be affected, due to the fact that
the service charges are directly attributable to an exempt supply. However, the majority of
employers will be unaffected, due to HMRC’s de minimis rules:
If an organisation (which is VAT registered) makes no other VAT exempt supplies (other than the
childcare vouchers) and the VAT value on the service charge is no more than £625.00 per month, the
de minimis rules can apply, which means the organisation can continue to recover 100% of the VAT
on the service charge. The only other condition is that VAT being claimed in respect of costs
attributable to exempt supplies does not represent more than 50% of the total VAT being claimed
(input VAT) by the organisation.

Organisations that are considered as Exempt or Partially-exempt for VAT purposes will already be
restricted in reclaiming the VAT on the service charges. Such organisations will need to review their
VAT calculations in order to correctly reflect the changes to the treatment of Childcare Vouchers and
the associated service charges.

VAT can be a complex matter, especially if your business has exempt supplies. We strongly
recommend that you discuss the VAT changes with your accountant, to ensure that you are
accounting for the VAT correctly in the context of your business.
If you have any questions, please contact Fair Care on 0800 652 4745.

Learn more on CVPA or Cycle to Work.

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