Childcare vouchers under threat warn Mazars

CHILDCARE vouchers – popular with many working women – could be on the way out, a Midlands tax specialist has warned.

And Terri Bruce, senior manager indirect tax with international accountancy firm Mazars , predicted the Government may even impose VAT on all such salary sacrifice arrangements.

Following a landmark ruling in the European Court of Justice, companies need to be talking to their advisers concerning the potential fall-out, she cautioned.

The Astra Zeneca case concerned vouchers with a cash face value exchangeable for goods or services at well-known retailers.

The group offered the vouchers in return for the employee giving up part of his or her remuneration – a “salary sacrifice”.  

Everyone except the taxman benefited because the vouchers were acquired by the employer at a significant discount to face value and were passed on to the employees at the same amount. Astra Zeneca sought to reclaim the VAT charged by the supplier of the vouchers while at the same time arguing that it did not have to account for VAT on the supply of vouchers to the employees.

Although the issue surrounded retail vouchers Ms Bruce fears it may have big implications for their childcare equivalent.

She said: “The ECJ judgment has caused consternation as, while the decision does deal with retail vouchers specifically, it also states that a salary sacrifice is a supply for VAT purposes.

“Whilst it is not yet clear how HM Revenue & Customs will react, it is possible that they could make all salary sacrifice arrangements vatable or they could just make voucher schemes vatable.

“My personal view is that this will happen.”

Initially, salary sacrifice schemes were set up as they created – amongst other things – tax efficiencies in the form of lower National Insurance Contributions, she added.

“Therefore they were unpopular with HMRC. Hence there is a political motive for putting VAT on these arrangements – given the current straightened economic times and the mooted withdrawal of these vouchers from the middle classes.

“To put VAT on them would make them less attractive and less tax efficient – therefore killing the scheme.

“While the Government may feel this is a move they can implement without a major outcry, they would be best advised to tread cautiously – if it happens, it will make childcare more expensive. Many women see childcare vouchers as a valuable benefit and I foresee widespread disappointment and irritation if they are got rid of.”

And she pointed out that voucher scheme providers would also take a major knock.

Ms Bruce said companies and staff would now have to await HMRC’s views on how they intend to proceed.

“That will be a good pointer to the wider implications,” she noted.