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.
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.