Employer: How is the VAT on the salary sacrifice payments calculated?
Using a £600 Certificate value with 12-month hire period as an example, VAT on salary sacrifice payments can be calculated in the following ways:
If the salary sacrifice amount paid by the employee includes VAT:
Monthly salary sacrifice inc. VAT = £600 / 12 months = £50
Net value = £50 / 1.20 = £41.67
VAT to be accounted for (Output Tax @ 20%) = £50 – 41.67 = £8.33
If the salary sacrifice amount paid by the employee excludes VAT:
Monthly salary sacrifice exc. VAT = £600 / 1.20 = £500 / 12 months = £41.67
VAT to be accounted for (Output Tax @ 20%) = £41.67 * 0.20 = £8.33
You can view the Governments advice on VAT Supply and Consideration here.