Cycle To Work Scheme operators respond to HMRC VAT ruling

Cyclescheme, the largest of the Cycle To Work Scheme operators that administer transactions on behalf of cyclists, employers and Independent Bike Dealers (IBDs), has issued a statement following the announcement this week that VAT will now be payable on salary sacrifice payments made by users of the scheme. Halfords, the UK's largest bike retailer, which administers transactions under its own Cycle2Work system, has also come back arguing that all parties might end up better off.

On Thursday we reported that following an EU ruling on company voucher schemes, Her Majesty's Revenue & Customs will need to consider that provision of a benefit to employees via salary sacrifice constitutes a supply of services and is therefore subject to VAT. The new rule comes into effect from January 1st 2012.

Two of the main operators, however, appear to agree that, far from offering a disincentive to buyers and employers, the new ruling offers a clarification meaning everyone can now move on after months of uncertainty, the Halfords press release even headed "VAT ruling now makes Halfords Cycle2Work scheme an even better option."

Daniel Gillborn, Head of Commercial Operations for Cyclesheme said yesterday, "As the market leader using our unique web based platform and dynamic savings calculator we have ensured that Cyclescheme is supporting our employers and their employees with the correct business logic to account for these changes - keeping the process simple and straight forward for all parties. The IBD network will also be kept informed, although no additional work on the part of the bike shop is required at all."

Daniel goes on, "Cyclescheme believes that this is the clarification we have been waiting for and will now allow employers to plan with certainty how to apply the benefits of the Cycle to Work Scheme for their employees, allowing them access to savings of up to 42%."

Charles Ashwell, Halfords Cycle2work Corporate Sales Manager 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.

“Halfords is the leading authority on the scheme, and we continue to invest in its development and future. We are uniquely placed to maximise savings by working with clients to design schemes which provide superior savings for employees and employers than those available from other scheme providers.”

On the face of it and based on road.cc's own back-of-an-envelope sums and Cyclescheme's own website calculator, the additional VAT payments will reduce the savings for top-rate tax payers from 52% to 42% and for lower rate tax payers from 43% to 33%. When the final payment of 7% of the initial price to eventually own the bike is factored in, the saving should still be about 25% which may or may not be a real saving considering that we're moving into the 'sale' season.

What is an undoubted saving, however, is paying for a potentially £1,000 bike over several years without coming up with a lump sum and without having to get into a credit transaction.