Many employers operate the Cycle to Work scheme and a recent decision by HMRC to change the treatment of VAT on benefits has an impact that needs to be considered, either for employers operating the cycle benefit on a standalone basis or as part of a wider benefit package.
HMRC guidance has been issued and the 2 relevant briefs can be seen at the following links:
http://www.hmrc.gov.uk/briefs/vat/brief2811.htm
http://www.hmrc.gov.uk/briefs/vat/brief3611.htm
It is important to note that this change relates to salary sacrifice arrangements only, as confirmed in the HMRC guidance which states:
1.4 Implementation: Revised VAT treatment of salary sacrifice
Businesses providing benefits under arrangements, which qualify as salary sacrifice schemes for VAT purposes, must account for output VAT on these supplies, where they are subject to VAT. In order to allow businesses time to make the necessary adjustments, HMRC will not require output tax to be accounted for on taxable benefits provided under salary sacrifice schemes, until 1 January 2012.
Some employers operating flexible benefit schemes will be providing bicycles where no salary sacrifice takes place or where a flex allowance may be partially funding the benefit and therefore only a proportion of the cost will be recovered through salary sacrifice. Employers wishing to address this issue in further detail will need to take advice from their tax adviser or we can support this through the Mazars tax team - please contact us for further details if you are interested.
IMPORTANT - As a default, and in the absence of further instructions from our clients, Redbourne will adjust the Cycle to Work benefit rules so that any VAT differential is removed and this will take effect for December selections so that records are changed for January 2012. If you do not want your system rules changes, please contact your account manager at Redbourne and the rule can be agreed.
Further information about these changes is also available from CycleScheme, Redbourne's preferred Cycle to Work provider at the following link:
http://www.cyclescheme.co.uk/employers/employer-updates/cyclescheme-hmrc-vat-update-faqs
Other benefits, like group insurances and company cars, are also covered in the HMRC guidance and are broadly exempt from this ruling. Again, for a more detailed impact assessment, please talk to your tax advisers or speak to Nick Bustin or one of the tax team at Mazars - contact details below.
To discuss in further detail, please contact:
Richard Stewart, Director, Redbourne - richard.stewart@redbourne.com - Tel: 0207 063 4140.
Nick Bustin - Senior Manager in the Tax Investigations and Employer Solutions team, Mazars LLP - nick.bustin@mazars.co.uk - Tel 0207 4277.
