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Cycle to Work and Childcare Voucher schemes

HMRC have recently sent a standard letter to all Academy Schools who are not VAT registered and who use the VAT 126 repayment claim form.

If you use either the Cycle to Work or Childcare Voucher schemes and charge a fee to employees, usually by salary sacrifice, then you cannot recover VAT on the direct costs, because the income is business income.  The Academy Refund scheme only allows VAT recovery on the costs of providing non-business activities, the free supply of state education and closely related activities such as trips, catering and transport.

For the Cycle to Work scheme, you will not be able to recover VAT on the bicycle purchase.

For the childcare voucher scheme, you will not be able to recover VAT on the fee charged by the external administrator.

If you have mistakenly claimed VAT partially or fully on these costs, you should correct these historic claims as explained in the HMRC letter. 

If you provide childcare vouchers or cycles for free to employees,  VAT is recoverable in full on the direct costs, as the activity becomes non-business.