Cycle to Work Schemes – VAT Update
The new VAT rules come into play on 1
st
January 2012…….
The new VAT rules will affect all new schemes where payroll reductions start in
2012, and existing schemes, where the salary sacrifice agreement was entered into
after 27th July 2011 and extends beyond 31st December 2011. Schemes entered
into, on or before 27th July 2011 are unaffected, irrespective of when the hire period
finishes.
• New schemes starting in 2012 – The changes
° Claiming VAT on the cost of the bicycles and accessories
For new schemes, starting on or after 1st January 2012, VAT can be
recovered on the cost of the bicycles and accessories, in full, by all VAT‐
registered organisations. This applies, whether or not the organisation’s
supplies (sales) are considered as standard rated, exempt or partially exempt.
The only exception is for organisations that are not VAT‐registered (with no
VAT number), where they can neither reclaim or charge VAT. (This can apply
to organisations whose supplies are wholly exempt, such as certain schools)
° Charging VAT on the hire rentals (salary sacrifice reductions)
Salary sacrifice is no longer ‘Outside the Scope of VAT’. Therefore, all
organisations (except those that are not VAT‐registered) must charge and
account for VAT on the monthly salary sacrifice, hire rentals under Cycle to
Work schemes. The Fair Care hire agreements have been updated to
accommodate these requirements.
You will most likely need to involve your finance team in order to make the
necessary monthly accounting entries (VAT invoices do not need to be
issued) and the entries on the VAT returns. The VAT collected will need to be
accounted for to HMRC by inclusion on the relevant VAT return.
Learn more on Employee discount schemes or Total reward statements.
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