Employers: Are you up to speed on salary sacrifice VAT changes?

It’s been nearly three months since VAT changes came into force affecting salary sacrifice schemes, so we thought we would put together a little refresher for employers on what the changes mean for childcare vouchers.

The changes

On 1 January 2012, changes to the way VAT is levied on salary sacrifice schemes came into force, bringing with them the potential to increase the overall costs of such schemes.

Salary sacrifice is a way for employees to exchange part of their salary for a non-cash benefit. Traditionally they have been used for pension contributions, but they can now also be used for benefits such as bikes, childcare vouchers, high street shopping vouchers, mobile phones and in certain areas even bus passes. The new rules mean that some of these items will now be liable to VAT.

What's behind the VAT change?

The changes have been made as a result of a European Court of Justice (ECJ) ruling in a case regarding Astra Zeneca and the high-street shopping vouchers it provided to employees under salary sacrifice arrangements. The ECJ ruled that the provision of shopping vouchers to staff as part of a salary sacrifice scheme was a supply of services in return for payment. This meant that Astra Zeneca was able to reclaim the VAT it had paid to acquire the vouchers, but the company also had to pass on to employees the cost of the vouchers including VAT.

So what now?

Following the changes, all salary sacrificed in exchange for benefits that are liable to VAT - including bikes and high-street vouchers - will now be liable to VAT.

What about childcare vouchers?

Computershare Voucher Services Limited (“CVS”) has obtained confirmation from HMRC that childcare vouchers provided by us are “credit vouchers” as defined by Sch 10A VATA 1994, as we never charge more than the face value for the voucher itself, the voucher is outside the scope of VAT.  As HMRC consider that the employer is an intermediary supplier of the voucher to employees, the same VAT liability rules will apply, although each employer should seek their own professional advice on this matter.

HMRC have also confirmed that the CVS service charge for the administration of the scheme is a separate standard rated supply.  As employers do not charge employees more than the face value of the voucher, then (depending on the employer’s circumstances), the VAT that CVS charge for the service charge, should be a deductible expense.  If, however, an employer starts to charge employees more than the face value for the vouchers, this position would change and employers should take their own professional advice.

Daycare Trust research shows 6% increase in nursery costs

Daycare Trust’s Childcare Costs Survey 2012 was released today. The research, sponsored by Computershare Voucher Services, shows that:

  • hourly childcare costs for a child under two have increased by 5.8%; and 

  • costs for a child aged two and over have risen by 3.9%.


In the same year period, wages have only increased by 0.3%.

Daycare Trust’s research coincides with new HMRC figures which reveal that 44,000 fewer families are receiving help with childcare costs as a result of the Government’s cut to financial support in April 2011. This saw the childcare element of Working Tax Credit cut from 80% of costs to 70% - as a result, the average claim has fallen by more than £10 per week, costing low-income working families who receive it more than £500 per year.  

The survey, conducted between November 2011 and January 2012, asked all Family Information Services in Britain about the cost and availability of childcare in their area. Other key stats revealed that:

  • the average hourly childcare costs now exceed £100 for 25 hours in many parts of Britain

  • the average yearly cost for a child under two is £5,103.

  • Britain’s most expensive nursery recorded this year charged £300 for 25 hours care – £15,000 for the year.

  • Over half of local authorities said that parents had reported a lack of childcare in the last year.


Anand Shukla, Chief Executive of Daycare Trust said: “These above-inflation increases in the cost of childcare are more bad news for families, heaping further pressure on their stretched budgets as wages remain stagnant and less help is available through tax credits.

“Daycare Trust warned that the Government’s decision to cut tax credits would mean that some families found that they were no longer better off going to work once they had paid for childcare. The latest HMRC figures reinforce Daycare Trust’s fear that the loss of this vital lifeline is forcing families out of work and in to poverty.

“Today we are calling on the Government to reverse its self-defeating childcare tax credit cut, and to deal decisively with the childcare affordability crisis for parents by pledging to provide free childcare for all two year-olds by the end of the current parliament.

Daycare Trust’s survey highlights the ever growing gap between working parents and affordable childcare.

Employers can do their bit to support employees by making flexible working a reality and introducing childcare voucher schemes. Schemes are cost neutral for companies to run and allow a basic rate earner to save nearly £1000 per year on their childcare costs.

Computershare Voucher Services fully supports Daycare Trust’s recommendations for improving accessibility to affordable childcare. We have been particularly heavily involved in the plan to extend childcare vouchers to self-employed and encourage entrepreneurship; a proposal that has already seen some Government support.

There have been several articles covering the report which you can read here:

Childcare cost rises 'may make parents quit their jobs' – BBC News

Childcare costs rise by nearly 6% - The Guardian

Childcare costs survey: nursery fees rise by 6 per cent in a year – Nursery World

My school is becoming an academy – can I still get childcare vouchers?

There has been a lot of chat recently about academies and ‘free schools’ and whether a school’s transition to the status will affect childcare voucher provision. There’s no reason childcare voucher provision should stop, but it will mean a slight change for the school.

Academies and ‘free schools’ are essentially the same, and simply put, they are publicly-funded independent schools. It’s thought that this academic year a further 24 ‘free schools’ were opened and there are now more than 1,000 in England.

‘Free schools’ are not run by the local authority and have the ability to set their own pay and conditions for staff, control the length of terms and school days and have some freedom around the delivery of the curriculum itself. They also have greater control over how they use budgets and innovate to best benefit their students.

They must also take on all responsibility for employee benefits packages from the local authority, including childcare vouchers.

Academies can operate a scheme in the same way as any other school, the only difference is that they will run and administer the schemes themselves. This means that interested academies, which are moving away from their local authority, will need to give us a call to register independently.

If you’re in any doubt about how these changes will affect you then visit our website and get in touch.

Working Families winners announced in London

I was thrilled to attend and speak at the Top Employers for Working Families Benchmarking and Awards last week. The awards are a fantastic way to celebrate companies who strive to go the extra mile in providing positive working environments, supporting a true work/life balance and championing family-friendly work practices.

The companies who attended the event and walked away with the top accolades in their category have all recognised the need to adapt working practices to support employees with families. In the long run, this makes for a happier and more productive workforce; assisting them in attracting and retaining skilled and reliable employees.

I’d like to pass on our congratulations to all of the winners and shortlisted companies, who are setting the standard for companies across the UK.

You’ll find the full list of winners and shortlisted companies on the Working Families website and I’ve uploaded a few photos for you here.

[gallery]

Working Families has dedicated more than 30 years to helping employers adopt family-friendly work practices and we are proud to support them through this partnership. We’re looking forward to working on other initiatives over the coming year.

Sarah Jackson OBE, Chief Executive of Working Families added: "Our Top Employers for Working Families all demonstrate how being family friendly translates into business success. This is really important in these hard economic times, and so I'd like to thank Computershare for their support in helping us get the message out".

CVS supports Working Families charity

I'm delighted to announce that we’ve entered into a partnership with Working Families; the leading work-life balance charity.

Over the next two years we’ll work with them on a series of initiatives, the first of which will be to support their ‘Top Employers for Working Families Benchmark & Awards’ later this month. The awards aim to recognise excellence in organisations that go the extra mile to deliver positive working environments.

Families are at the heart of what we do at CVS and we’re really proud to be supporting Working Families because we have a common goal; to promote a family friendly workplace culture to help create a positive relationship between work and home life.

Across all industries, working parents have built up valuable skills that employers should strive to retain and a key way to achieve this is through flexible working and family-friendly policies.

A Department for Work and Pensions report found that of employers questioned, six in ten (61 per cent) said that their organisation offers flexible working practices to their staff. This was more likely to be the case amongst large organisations.

Flexible working offers real benefits to employers and employees alike; employers can retain a skilled and happier workforce and busy parents can more easily meet their commitments at work and at home.

Sarah Jackson OBE, Chief Executive of Working Families said: “Working Families is thrilled to be working with Computershare Voucher Services. Both our organisations share a real commitment to enabling parents to be dependable and high performing employees as well as present and engaged at home.”

Working Families works with parents, carers and employers to find a better balance between responsibilities at home and work. The organisation helps employers to create workplaces which encourage a work-life balance for everyone.