HMRC makes VAT ruling on cycle to work initiative
Her Majesty’s Revenue and Customs has confirmed that provision of a benefit via salary sacrifice to employees amounts to a 'supply of services for consideration' and so is subject to VAT – meaning that employers must now charge employees VAT on supply of bikes made available to them under bike to work schemes.
The ruling comes into effect from January 1st 2012.
The change has taken place following a ruling from the European Court of Justice.
The bike to work salary sacrifice scheme has been widely praised by the bike industry as a driver of sales in the sector. Last summer the future of Cycle to Work appeared to be in flux following a rule change on the scheme by HMRC. Following that, key C2W providers, including Cyclescheme, maintained that the initiative is still valuable to employers, employees and participating bike dealers, issuing clarification on the ruling. This most recent decision on the scheme from the HMRC is likely to be seen as a negative move by most of the cycle trade.
According to Halfords – one of the first from the industry to react to the ruling – the move suggests employee savings through the scheme will be reduced, but through its own Cycle2work scheme that need not be the case, it said.
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Charles Ashwell, Halfords Cycle2work corporate sales manager, commented: “The new ruling removes the final element of uncertainty about exactly how schemes should operate going forward, and in so doing, strengthens it further.
Ashwell continued: “Halfords is the leading authority on the scheme, and we continue to invest
in its development and future. We are uniquely placed to maximise savings
by working with clients to design schemes which provide superior savings
for employees and employers than those available from other scheme
providers.”
There have since been responses on the news from the Cycle to Work Alliance and also from Cyclescheme.
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Comments
6 comments
If the chancellor had any green credentials he could remove VAT from all cycle schemes and reduce it on bicycles. The amount to HMRC would be small in the scheme of things, but the incentive for the public could be very attractive.
Robert Wade Jul 28th 2011 at 4:53PM
0 0Anything to encourage people to get on a bike = good. Anything to make people think twice about it = bad. They need to re-evaluate this and see the could damage it might do long term.
Simon Edwards Jul 28th 2011 at 5:19PM
0 0Halfords Advert??? Doesn't exactly help IBD's to advertise Halfords being better than anyone else which is essentially what it says above!!
Craig Groves Jul 28th 2011 at 8:27PM
0 0Yes, they are bold words indeed from Halfords! We'd like to think, however, that our readers will realise a quote from Halfords about a Halfords service is going to be about as biased as it can be. Comments are very much welcome that take issue with their claim! In fact we'd love to hear comments from independents on what they make of the VAT ruling and we'll gladly publish them on BikeBiz.
Jonathon Harker Jul 29th 2011 at 10:43AM
0 0Short sighted politicians. Also a mad rush in November and an already busy December. Charles Ashwell claims that there will be no reduction of savings through their Cycle2Work scheme. Is he saying that a £1000 bike that would work out at around £600 on under current rules ex VAT and around £720 including VAT under proposed rules for other companies, would still be £600 AT Halfords, even under proposed rules?
Tom Lynch Jul 29th 2011 at 11:13AM
0 0How will this affect existing schemes - employers who have employees already in agreements will have to pay VAT from January. It does not appear that this applies to bikes supplied from January but all salary sacrifice payments ongoing. Employees have signed an agreement so they can't be charged the extra but employers will have to take the hit and pay the VAT.
James Gardener Jul 29th 2011 at 1:15PM
0 0