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Bike to Work scheme VAT for bikes costing >£1,000

Unreliable advice from scheme provider and hoping for someone with experience to provide guidance

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My client has signed up with a Bike To Work scheme provider. Unfortunately the scheme provider appears to be administratively inept and has also given advice which is at best misleading. There are quite a few issues to resolve but the one I would like views on are the VAT status of the invoices my client has received and also that of the Salary sacrifice arrangement.

I think the operation of the scheme for bikes <£1,000 is fairly straightforward. For bikes over £1,000, the system is slightly different where an employer does not have a Consumer Credit Licence (as in the case of my client). In summary:

The scheme provider invoices the client for the cost of the bike (Issue 1)
The employee enters into a 1 year hire contract with the scheme provider who provides a voucher to the employee to get the bike once the client has paid up
The employee enters into a 1 year salary sacrifice agreement with the client (Issue 2) equivalent to the gross amount of the invoice from the scheme provider
The ownership of the bike remains with the scheme provider throughout.
(There may then be an extended use agreement and the employee can subsequently buy the bike using the HMRC value matrix. This is an arrangement that is purely between the employee and scheme provider.)

Issue 1: The scheme provider invoices read as if they are invoicing the client for the bike itself e.g 1 Cannondale super duper bike £x plus VAT 20% of x. They have sometimes described it in correspondence (not in the invoice itself ) as for a voucher. Is there actually a supply of a voucher to my client? I can see a slightly convoluted argument that there is a supply of a voucher to my client even though they never have possession of it (it passes direct from scheme provider to employee) in which case I would assume it qualifies as a single purpose voucher and is therefore indeed VATable at standard rate and/or zero rate (helmet). However it feels more like a financing transaction by my client  - paying the scheme provider up front and then recouping the outlay via the salary sacrifice.

Should it be VATable or not?

Issue 2: For an under £1,000 scheme, output VAT has to be accounted for on the salary sacrifice element. Does this still apply for an over £1,000 bike scheme where both ownership and the hire arrangements are with the scheme provider and not the employer? A specific problem that could arise is where the VAT treatment of the invoice from the supplier and that of the salary sacrifice arrangement are different.

Sorry about the length of this (it is only the tip of the iceberg!). However the amounts of "VAT" involved are substantial.

Replies (16)

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By Wanderer
22nd Nov 2021 12:51

Must be a common situation:-
https://www.greencommuteinitiative.uk/employers/
"6. Once the agreements are e-signed and payment has been made, we’ll also send you a receipt and instructions on how to handle the VAT element."

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By The Dullard
22nd Nov 2021 13:04

Who supplies what to whom.

For the over £1,000 scheme if ownership of the bike remains with the scheme provider and the lease is between the scheme provider and the employee, the employer is neither receiving or making any supply. It is simply acting as collector, as well as financier by being asked to pay all of the hire payments up front.

The VAT inclusive invoice is presumably equal to the sum of the VAT inclusive lease payments, with no VAT to be recovered or accounted for by the employer, and a simple in and out for the scheme provider.

That's opinion based on your description, rather than having knowledge of the specific scheme. The only schemes I have ever had involvement in excluded bikes over £1,000.

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Replying to The Dullard:
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By paulwakefield1
22nd Nov 2021 13:10

I agree with your analysis and therefore the invoice received should not have VAT. Although there has been an argument that a voucher is supplied which is somewhat supported by Wanderer's link.

I am hoping someone will have direct experience of a >£1,000 bike scheme.

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Replying to The Dullard:
RLI
By lionofludesch
22nd Nov 2021 14:03

The Dullard wrote:

Who supplies what to whom.

Love it.

I'm still reeling from the news that somebody would pay over £1000 for a bike.

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Replying to lionofludesch:
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By paulwakefield1
22nd Nov 2021 14:16

The VAT alone is over £1,000 on some of the bikes!

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Replying to paulwakefield1:
RLI
By lionofludesch
22nd Nov 2021 14:40

paulwakefield1 wrote:

The VAT alone is over £1,000 on some of the bikes!

Plenty good enough.

https://www.halfords.com/bikes/mountain-bikes/indi-atb-1-mens-mountain-b...

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By paulwakefield1
22nd Nov 2021 13:07

Thanks Wanderer - I agree it must be common. And thanks for the link - one of the few sites I have not looked at and definitely better than anything produced by my client's scheme provider who are inconsistent, misleading and appear to produce agreements written by 2 year olds.

But I'm still none the wiser about the VAT treatment. :-) Even your link says we will tell you when you need to know!

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Replying to paulwakefield1:
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By Wanderer
22nd Nov 2021 15:07

Yeh, Rob, who set this up, is one of the good guys in the C2W industry. Met him a few years ago when he was setting up the company. Was really switched on & set up the Halfords C2W scheme before he moved out on his own. His actions have resulted in the breaking of the £1,000 limit and lower commissions to the bike shops. Much of what he pioneered has led to the more established providers following in his foot steps.
Back to the VAT issues wondering if VAT in this instance is an issue at all for the employer. Bike shop sells to provider, who retains ownership. Employer pays provider. Employer recovers from employee.
Hire agreement is between provider & employee.

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Replying to Wanderer:
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By paulwakefield1
22nd Nov 2021 16:18

Yes - that was the view I had come round to (i.e. completely different to the sub £1,000 set up) but it would be good to have it confirmed. I'm hoping Jason may pop up with something definitive.

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Replying to paulwakefield1:
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By Wanderer
22nd Nov 2021 16:27

Don't think under / over £1,000 will be relevant to the VAT situation. That was all about the CCL bits, which most providers have got around now. Note it's possible to have an over £1,000 agreement even when employer has no CCL (& not relying on the provider's CCL) following a 2015 relaxation.

Think the VAT treatment will depend on exactly what the agreements say in each case.

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Replying to Wanderer:
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By paulwakefield1
22nd Nov 2021 16:48

"Don't think under / over £1,000 will be relevant to the VAT situation. "

Assuming that for under £1,000, the employer owns and hires the bike surely that would be different (from the employer's perspective) if the scheme provider owns and hires a >£1k bike? I can see it would be the same if the provider adopts ownership and the hiring arrangements for all bikes irrespective of value.

"That was all about the CCL bits, which most providers have got around now."

Not my client's provider. :-)

"Note it's possible to have an over £1,000 agreement even when employer has no CCL (& not relying on the provider's CCL) following a 2015 relaxation."

Now that I hadn't picked up on. I thought the solution that 2015 introduced was the scheme provider owning and hiring the bike under their CCL. Do you have a link to anything in words with one syllable :-) ?

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Replying to paulwakefield1:
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By Wanderer
22nd Nov 2021 17:00

Your first question actually makes the point that I was making.

Your second question, no that was later. The 2015 relaxation was all about fixed payments, max 12 payments, max 12 months and no interest / other charges, e.g.
https://www.nature.com/articles/bdjteam201562

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Replying to Wanderer:
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By paulwakefield1
22nd Nov 2021 17:17

Thanks once again. That clears up a lot and makes me even more perplexed as to what my client's scheme provider is doing (which I appreciate may not be obvious from the info that I have provided here).

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By tom123
22nd Nov 2021 15:36

eurgh - not really sure we are handling these things correctly here now..

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Replying to tom123:
RLI
By lionofludesch
22nd Nov 2021 15:49

[chuckle]

Lucky you were reading this.

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Replying to tom123:
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By Wanderer
22nd Nov 2021 16:16

You may well be handling it okay.
Normal point overlooked (when hire relationship is between employer and employee) is forgetting to account for VAT on the monthly hire charges.

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