VATSC05881 - Consideration: Payments that are Consideration: Salary sacrifice: Particular staff benefits

Cycle to Work Scheme

Under the Cycle to Work Scheme employers purchase bicycles and safety equipment and provide them to employees. Where this is under a salary sacrifice arrangement employers must account for output tax based on the value of the salary foregone by the employee in exchange for the hire or loan of a bicycle.

VAT is due when a bicycle is disposed of and its value should normally be based on the price of an identical or similar item, taking into account the age and condition etc.

Valuing bicycles has caused difficulties for Scheme operators and therefore, to reduce administration burdens, the table used to value bicycles for direct tax purposes may be used http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm (link is external). Any bicycles that fall outside of the table (such as antique or specialist bicycles) should be valued using the normal VAT valuation rules. If businesses choose to use lower values, they may be challenged in which case evidence will be required to support the valuation.

Childcare and Childcare Vouchers

Businesses that put arrangements in place whereby their employees forego part of their salary and allocate that salary to pay for childcare provided by a third party are not making a supply of childcare. Any related costs incurred by the business, such as payroll and administration, are general overheads of the business.

Face Value Vouchers

Where vouchers, such as those available from high street retailers, are provided under a salary sacrifice arrangement (as defined above) input tax may be claimed and output tax is due on the consideration paid by the employee.

Food and catering provided by employers

Employers may provide their staff with free or subsidised meals, snacks or drinks. Where employees pay for the meal the normal VAT treatment will apply. If employees make no payment, VAT is not due (provided the benefit is available to all staff). Where employees pay for meals under a salary sacrifice arrangement, employers must account for VAT on the value of the supplies unless they are zero-rated. An employer may claim the input tax incurred on related purchases, subject to the normal rules.

Motor cars

Most businesses are prevented from recovering VAT in full on the purchase and leasing of company motor cars. The input tax block on cars (100% on purchases and 50% on leasing) means that employers do not account for output tax when cars are made available to employees. Where an employer suffers no input tax restriction, output tax is due.

Where employees are provided with a single supply of a car and maintenance the input tax block will apply to the whole cost to the employer. Because VAT has been blocked output tax is not due.

Benefits available to all employees for no charge

Where no charge is made no VAT is due. For example, the provision of a work place gym available to all employees for no payment.

Businesses can recover VAT incurred on providing such facilities as a business overhead, subject to the normal rules.