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.