Cycle to work arrangements and Bus passes

HMRC has published a document to provide answers to frequently asked questions on the salary sacrifice arrangements for cycles and bus passes.

Many employers have agreed to provide Cycle to Work arrangements. Employees can take advantage of a tax exemption that allows employers to loan bicycles to employees as a tax free benefit. The guidance now makes it clear that even if some employees are excluded from salary sacrifice arrangements for any reason the offer of a bicycle must still be open to them in order for the exemption to apply.

Astra Zeneca UK Limited v HMRC Case C-40/09

In this case the European Court of Justice held that benefits provided under certain salary sacrifice schemes are subject to VAT once applied to employees. Astra Zeneca operated a scheme whereby employees could sacrifice part of their salary for a £10 voucher to be used in various stores. The value of the vouchers were deducted from their pre-tax salary at £9.00. The case concerned output VAT and the ECJ decided that VAT was in fact payable on the supply of vouchers to the employees. HMRC has not yet said whether it intends to seek to recover the VAT arrears over the last 4 years or will simply require employers to change the VAT treatment going forward.

Key point: Employers should consider whether or not their salary sacrifice schemes of this type are now a viable benefit, but care must be taken if there is to be a restructuring of any contractual benefits.