Cycle to work scheme and VAT

HMRC says you need to charge VAT on the sacrificed amount but this is tricky

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Hi There!

I have searched and searched and there is a lot of info on cyle to work schemes but not specifically on the issue of HMRC demanding that we include sales VAT on the salary sacrificed amount.  I use Sage payroll and this seems to not have any feature to do this automatically.  My thinking is just to not claim purchase VAT on the purchase of the bike and then to not charge sales VAT either on the salary sacrifice.  Seems simple and the VAT man will not be out of pocket in total. 

Otherwise any suggestions on how to do it properly on Sage?  All i can think of is an extremely complicated journal, every month, involving the sales VAT controll account.  I know that if i seek professioanl advice on this from my accountants it will cost ££££ and all for a scheme that the goverment wants to encorage and is giving no info on?!?

Many thanks in advance for any help on this.

Replies (19)

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By Accountant A
20th Jun 2018 13:30

Andy001 wrote:

I have searched and searched and there is a lot of info on cyle to work schemes but not specifically on the issue of HMRC demanding that we include sales VAT on the salary sacrificed amount.

Am I the only person on here who can use Google??

https://www.google.co.uk/search?ei=gkgqW9u7DMOuUpbuurgC&q=Cycle+to+work+...

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Replying to Accountant A:
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By Andy001
20th Jun 2018 14:12

Thanks for your google link but all the results are showing already read - which means i have already been through he whole lot looking for answers. All they state is that you do have to charge sales VAT - it does not say weather or not it is reasonable to just not claim purchase VAT to offset it? It does not say how Sage can process VAT on a salary sacrifice.

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Replying to Andy001:
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By Wanderer
20th Jun 2018 14:41

I've certainly seen it suggested before that HMRC aren't concerned if you take the don't claim it / don't charge it approach.

Obviously you won't find anything in writing

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Replying to Wanderer:
Ivor Windybottom
By Ivor Windybottom
11th Dec 2020 10:34

Wanderer wrote:

I've certainly seen it suggested before that HMRC aren't concerned if you take the don't claim it / don't charge it approach.

Obviously you won't find anything in writing

I wouldn't rely on that ... HMRC do still consider that VAT is due on the sacrifice amounts whether or not the initial VAT is reclaimed, so this is not a recommended option.
Two wrongs don't make a correct VAT submission, even if fiscally neutral.

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By WhichTyler
20th Jun 2018 13:48

This is broadly why the cycle scheme is not worth the bother. I would just give interest free loans as with season ticket etc...

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By rjoconnor81
20th Jun 2018 15:02

You don't have to make any amendments in the payroll, just run that as normal. Then post a recurring monthly journal into sage for the VAT amount, making sure the VAT side of the journal is posted with T1 (so it will be picked up on the VAT return). Dr - P&L (T9), Cr - VAT account (T1).

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Replying to rjoconnor81:
By ireallyshouldknowthisbut
20th Jun 2018 15:25

Well quite.

People who insist on using antique software need to learn the ancient art of the journal!

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Replying to rjoconnor81:
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By Andy001
20th Jun 2018 17:48

Great I shall do that! thank you. I had thought i would end up putting monthly journals but i couldn't quite believe a mass adopted government scheme could be so ignored by Sage...

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Replying to rjoconnor81:
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By snowysky
10th Dec 2020 13:36

Hi Rjoconnor81,

How do you post this when the salary sacrifice amount includes VAT and the journal entries go by the Net Amounts?

Thank you

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By snowysky
10th Dec 2020 13:31

Hi Andy,
So how did you eventually post them?

The example given via this link, as below, will leave the salary journal unbalanced by the VAT amount (https://www.cyclescheme.co.uk/employers/employer-updates/cyclescheme-hmr...):

If the salary sacrifice amount paid by the employee includes VAT:
Monthly salary sacrifice inc. VAT = £600 / 12 months = £50
Net value = £50 / 1.20 = £41.67
VAT to be accounted for (Output Tax @ 20%) = £50 – 41.67 = £8.33,

I was otherwise thinking to post the salary sacrifice as a credit to the sales code as HMRC sees it as a monthly bike hire and therefore a revenue.

It would have been Cr Bike Hire (e.g. NC4000) £41.67 on T1 with VAT amount £8.33, but the salary journal will be out by £8.33.

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Replying to snowysky:
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By Wanderer
10th Dec 2020 13:48

snowysky wrote:

It would have been Cr Bike Hire (e.g. NC4000) £41.67 on T1 with VAT amount £8.33, but the salary journal will be out by £8.33.

Why's that then? In my book £41.67 + £8.33 = £50.00.
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Replying to Wanderer:
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By snowysky
10th Dec 2020 15:17

Hi Wanderer,

That's because the journals look at the Net amount. Or have you a way around this?

Thanks

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Replying to snowysky:
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By Wanderer
10th Dec 2020 15:49

snowysky wrote:

That's because the journals look at the Net amount.

Why would they do that???
Dr Salaries £50.00
Cr VAT liability £8.33
Cr Bike hire £41.67
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Replying to Wanderer:
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By snowysky
10th Dec 2020 16:11

Hi Wanderer, That's exactly my issue. The journal in Sage only has the field for Net amount and not for VAT. And for the amount to be picked up in the VAT return as a VAT liability, it needs to use a VATable code. Or what am I missing?

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Replying to snowysky:
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By Wanderer
10th Dec 2020 16:36

Not that familiar with Sage however why not issue a sales invoice? Then settle that sales invoice by a journal.

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Replying to Wanderer:
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By snowysky
11th Dec 2020 18:09

Wanderer wrote:

Not that familiar with Sage however why not issue a sales invoice? Then settle that sales invoice by a journal.

Yes thought of the sales invoice option just for the salary sacrifice amount as this will allow the use of the vatable code, but this means I will not be able to post the full salary journal.. And what do you mean by settling the sales invoice by a journal?

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Replying to snowysky:
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By Paul Hawes
11th Dec 2020 14:20

It's a 3 line journal in Sage.
Dr 7000 Salary
Cr ???? Bike Hire
Cr 2200 VAT

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Replying to Paul Hawes:
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By snowysky
11th Dec 2020 18:19

Paul Hawes wrote:

It's a 3 line journal in Sage.
Dr 7000 Salary
Cr ???? Bike Hire
Cr 2200 VAT

Hi Paul, I've never manually posted journals to the VAT control accounts. Are you saying that it can be journalled to 2200 Sales Tax Control (therefore on T9 as a it's a journal), and it will be picked up in the VAT Return? I was going to contact Sage today but was so busy it will have to be Monday now.

The bike hire, as viewed by HMRC, will be a service revenue, so can be set up as a 4000 code in Sage.

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By keithsharvey
29th Dec 2020 16:39

No the journal to the control account would have to be T1 or it would be ignored on the vat return so:

DR 7000 £50.00 T9
CR 4000 £41.67 T1
CR 2200 £8.33 T1

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