HMRC have issued the above brief which offers further guidance to assist businesses with the implementation of changes to VAT accounting in relation to salary sacrifice arrangements announced in Revenue and Customs Brief 28/11.

For salary sacrifice agreements that were signed or otherwise agreed by the parties on or before 27 July 2011 and which extend beyond 31 December 2011, HMRC will allow amounts of salary foregone in return for taxable benefits to continue to be free of VAT until:

• The date that a fixed term agreement expires or the fixed number of salary sacrifice payments specified within the agreement are completed (if the agreement expires before 1 January 2012 any agreement subsequently entered into should follow the VAT treatment described in section 3 below).
• The date of an employee's annual salary/benefits review. HMRC will regard any salary sacrifice arrangements put in place after that date as a new agreement for VAT purposes which should follow the treatment described in section 3 below. 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.

Following one of the above events VAT will be due on any taxable benefits provided on or after 1 January 2012 by way of salary sacrifice.

For agreements entered into on or after 28 July 2011 VAT must be accounted for in accordance with the guidance in Revenue and Customs Brief 28/11 meaning that with effect from 1 January 2012 VAT will be due on amounts of salary foregone in return for taxable benefits.

Brief 36/11 is available at http://www.hmrc.gov.uk/briefs/vat/brief3611.htm