Cycle to Work | Key points from the VAT update from March, 2024 for UK only

Overview

When?

From 1st March 2024 onwards VAT is no longer included in the invoices sent to clients for C2W LOCs. 

Why?

The contractual relationship between Halfords and Cycle to Work has changed, and the agreement is now between Halfords and the employee, the contract starts when the employee redeems the letter of collection and it as this point when VAT is accounted for by Halfords.

What's changed?

Nothing major has changed for the client apart from the fact that VAT is no longer included in the invoices sent by Reward Gateway for approved Cycle to Work applications. There will not be any cost savings for the client on the Cycle to Work applications made by employees due to the VAT update. If a client asks how this change impacts their ability to claim VAT, this is not something Reward Gateway can provide guidance on as we are not tax advisers and it is down to the client to to seek guidance on this from tax advisers.

Example of the invoices pre and after the change

Invoice to a client prior to the change:

Invoice to a client after the change:

Comparison table

FAQs

Previously, was the client charged for VAT? 

Yes, previously the client would have been charged for VAT which is why it was included in the invoices sent to clients.

Previously, was VAT included the cost of the bike/LOC during the application process? 

Yes. Previously, VAT was included in the overall cost of the bike/LOC that employees could see in the application process and this has not changed.

Example, if the cost of a bike/LOC is shown as £1,000 to the employee, this would have included VAT, the actual cost of the bike would have been £833.33, the employee would be required to repay the entire £1,000 to their employer.

Previously, would employees see the VAT breakdown in the cost of their bike/LOC during the application process? 

Yes, employees would see the VAT breakdown for the cost of their bike/LOC at the point of purchase and this has not changed.

Moving forward, is VAT still included in the C2W Application process for employees? 

Yes, VAT will be factored into the overall cost of the bike to employees  

Example, if a LOC was worth £1,000 this will include VAT and the actual cost of the bike would have been £833.33, the employee would be required to repay the entire £1,000 to their employer 

Does the change of where the VAT sits have any impact on the savings that an employee would normally make when redeeming their LOC?

No, this update does not impact the savings in any way.

Does the employee still pay back the total amount including VAT?

Yes.

What is the difference between the receipt (including VAT) the employee will receive at the till vs the invoice that will be sent to the client 

The receipt (including VAT) the employee will receive at the till will show the total cost of the LOC and how this is separated between Net Cost and VAT. For example, if a LOC was worth £1,000 this will include VAT and the actual cost of the bike would have been £833.33.

The invoice sent to the client will be for £1,000 total as Reward Gateway is a mediator in the relationship between Halfords and the client.

Does the VAT update impact the repayments that the employee is required to repay to the employer? 

No, the VAT update does not affect the monthly repayments as the employee's agreement before and after the change is the same.  They applied for the cost of the bike previously £1,000 (which incurred VAT for the employer) and they repaid them £1,000.  Now the cost of the bike is still £1,000, and therefore they repay their employer £1,000.  The difference is that there is no VAT to the employer - it is just included at the till.