Accounting for VAT re cycle to work scheme

My client has just set up a cycle to work scheme and I need  some help with how to account for it. For schemes entered into since July 2011, the employer must account for VAT on the amount of salary sacrificed each month. According to the cycle scheme operator, the amount of salary sacrificed is the gross amount, so the VAT to be paid by the employer should be 1/6th of that.

On purchasing the  bike I think the entries will be dr bike (net amt), dr vat (vat amt), cr bank (gross amt), so the employer gets to reclaim the vat.

The bike is then loaned to the employee, and in return his gross salary over a 12 month period is reduced by the gross cost of the bike (1/12th of the total cost each month).

So say the salary sacrificed is £120 per month, the employer needs to pay over to HMRC vat of £20 each month. The vat entry must be cr vat £20, but what are the other entries?! There is no actual cash being transferred between the employer and the employee, and the bike remains owned by the employer.

Does anyone have experience of this?

Thanks

Liz