The end of 'Cycle to Work'

[GT3]

From Daniel Barnett's legal update

The European Court of Justice has ruled that (most) benefits provided to employees under salary sacrifice schemes are VATable. Salary sacrifice schemes are enormously popular, not only the £10 retail voucher scheme operated by Astra Zeneca which led to the present case, but also in particular 'cycle to work' schemes which allow employees to buy bikes at a substantial discount. No doubt they will now wither, if not die.

Astra Zeneca claimed reimbursement from HMRC of the input VAT which it incurred when buying the retail vouchers. HMRC rejected the claim, asserting that Astra Zeneca had to pay VAT in respect of retail vouchers it purchased if/when they were supplied to its employees as part of their remuneration packages (the employees, of course, are not taxable persons for the purpose of VAT).

The ECJ agreed with HMRC, holding that the provision of a retail voucher by a company to its employees as part of their remuneration constitutes a supply of services effected for consideration.

Coupled with HMRC's requirement for the 'buyback' value of a £500+ bike after one year being 25%

EIM21667a - Particular benefits: bicycles: simplified approach to valuing cycles sold to employees after end of loan period

pretty much renders C2W dead in the water.

Shame, as I never used it, but sadly typical of our previous governments half baked approach.

 

[flecc]

Interesting, but surely this particular judgement can be challenged, since HMRC has stated that the vouchers are part of the remuneration.

As such the vouchers are cash equivalents and do not become a "service" until spent by the employee, so in that respect they are no different from the salary the company pays on which they pay no VAT, a clear contradiction.

A bike supplied by whatever means is different of course, having some affinity with company cars on which VAT is chargeable.
.

 

[allen-uk]

Never mind about the previous barmy government, we're now up against this lot instead, and if they're in the business of cutting everything in the way of benefits, I can't see Cycle To Work schemes surviving long.


A.

 

[JuicyBike]

I understood that the Cycle To Work scheme saves money because VAT is not charged for the hire of bicycles.

The company purchases the bike and claims back the VAT. The company hires the employee the bike and can not charge VAT for that hire.

After (typically) one year the employee buys the bike from the company, who would then have to charge VAT on the residual value of the bike.

It is the residual value of the bike after one year that is currently being disputed, with HMRC now saying 25% value remains after 12 months. Until recently the assumption had been there is little value in a bike that is 12 months old (barmy, but handy if you want to save a lot of cash).

That's how I understand the scheme takes adavantage of VAT, but I admit to not having a great grasp of accounting - you can tell this from the way I dress!

I think the savings are still substantial and hope the myths don't become too exagerated as we sell lots of bikes through this scheme.