HMRC confirms VAT charge on bikes-for-work schemes

HM Revenue and Customs (HMRC) has confirmed that bikes-for-work schemes offered through salary sacrifice arrangements are liable to a VAT charge to employees.†

The ruling is in response to a recent European Court of Justice judgement. The charge is to take effect from 1 January 2012.

HMRC said employers that provide bikes under deduction from salary arrangements are unaffected by the judgement as payments received from employees have always been subject to VAT and will continue to be so.

The Cycle to Work Alliance said that the ruling does not mean a blanket reduction in benefit of 20% as some scheme participants, such as financial services firms and partially exempt organisations such as charities, will now get additional benefits as they will be able to recover the VAT in full.

Bikes-for-work scheme provider Halfords suggested that savings available to employees may not be reduced.

Charles Ashwell, corporate sales manager at Halfords, said: “The new ruling removes the final element of uncertainty about exactly how schemes should operate going forward and, in so doing, strengthens it further.”

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