HM Revenue and Customs has confirmed it will be issuing a new Brief shortly to make clear these new transitional arrangements for VAT rules.
After close consultation with the Cycle to Work Alliance, HMRC has agreed to issue further clarification on the judgement of the European Court of Justice's ruling on applying VAT to salary sacrifice payments.
Cycle to work scheme agreements which had been signed on or before the 27 July 2011 and which extend beyond 31 December 2011 will not be affected by the new VAT changes.
Ministers are in agreement that the cycle to work scheme forms a key plank in the Government's strategy to tackle objectives for sustainable transport, carbon reduction and promoting improved public health.
Steve Edgell, chairman of the Cycle to Work Alliance and Director of Cycle Solutions said: "The Cycle to Work Alliance is delighted to have worked with HMRC to achieve this new Brief. It is a victory for common sense and ensures that employers who followed the previous guidance will not be affected by the changes.
The cycle to work scheme is recognised by Government as an important means to encourage more active and environmentally friendly commuting"
Employees whose salary sacrifice arrangements had been signed on or before 27th July 2011 will not have to account for VAT on their salary sacrifice payments. Participants signing up to the scheme after 28th July 2011 will have the VAT changes built into their salary sacrifice payments by their provider. The Alliance called for this amendment to reduce the administrative changes for existing schemes.