HMRC Update – VAT on salary sacrifice schemes

Posted - September 9, 2011

On Thursday 29th July 2011, HMRC made an announcement about the treatment of VAT for salary sacrifice schemes (Revenue & Customs Brief (28/11). Cycle Solutions are pleased that this has removed the final element of uncertainty about exactly how schemes should operate and will give employers added confidence when launching cycle to work schemes in future.

The announcement from HMRC comes in response to a recent European Court of Justice judgement, confirming that provision of a benefit via salary sacrifice to employees constitutes a supply of services for consideration and is therefore subject to VAT. This ruling means that from 1st January 2012, employers must account for VAT on the supply of bikes made available to their employees under such schemes. This is a change to previous guidance which indicated that VAT-registered employers would be able to pass on additional savings to employees.

The ruling means that as an employer, if you currently operate a cycle to work scheme and will have employees whose salary sacrifice arrangements run in to next year, there will be an added VAT cost to consider. As an employer, you may wish to pass this cost on to employees through a variation to their existing salary sacrifice arrangement. Alternatively, your organisation may prefer to absorb this additional cost.

If your organisation is not VAT-registered, then the salary sacrifice amount already agreed with your employees will already be inclusive of VAT. So, your organisation and your employees will be unaffected by this latest news.

We will be pleased to discuss your existing scheme arrangements and to assist you in ensuring that your scheme remains fully compliant with all HMRC guidelines. If you would like to arrange to re-launch your cycle to work scheme, or if you have any questions regarding the latest VAT guidance, please call us on 0845 2799970 or email

As always at Cycle Solutions, we will be able to work with your organisation to prepare industry leading cycle to work scheme packages which ensure that both your organisation and your employees receive the best savings available. With additional benefits and savings now available from Cycle Solutions employees who join the scheme will still be able to save between 29.4% and 47.8% against the retail price of bicycles and safety equipment provided through the scheme.

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