E-BIKES ARE TAKING OFF IN THE UK – AND A NEW TAX BREAK COULD ENCOURAGE EVEN MORE PEOPLE TO SADDLE UP

[Andy Bluenoes]

PS either scheme is a no brainer for me.
A rail ticket when I move house will cost 1700 for the year... thats for a 40 mile round trip plus 15 minutes walk at each end. My employer does offer interest free loans for that, but there are no tax benefits in it.

The cycle shemes win hands down, and the added bonus is not being stuck on a train for 2 hours a day!

 

[Wisper Bikes]

Hi Andy, Rob from Green Commute would be happy to talk the scheme through with your employer. He will even arrange a loan for them to buy the bike and the cost of the loan would be more than covered by the 13.8% saving they will make on employers NI contribution. In fact they will actually save money and increase profits buy supplying bikes to their employees!

If you email me I wil happily put you in touch.

All the best, David

 

[jonjoe]

I run my own VAT registered business, my accountant said the cycle to work scheme was not beneficial for me. As the cycle would be mainly used for work he said the company can buy it, this way I get the VAT back and corporation tax relief.

 

[2Lazy]

It's also worth bearing in mind that the £1000 limit doesn't always apply even with regular cycle to work schemes. If you're lucky enough to work for an employer that has its own credit facilities the £1000 limit may not apply. This is the case with my employer, who set the cyclescheme purchase limit at £10,000, which obviously offers a lot more flexibility as well as potentially much greater savings.

I must say I feel sorry for independent retailers having to take a 10% hit. Now I realise why some bike shops were less than enthusiastic when I mentioned C2W!

 

[Andy Bluenoes]

Ive dropped you an email David

 

[Wisper Bikes]

Ive dropped you an email David

Thanks Andy, I'll get back to you.

 

[Woosh]

I must say I feel sorry for independent retailers having to take a 10% hit. Now I realise why some bike shops were less than enthusiastic when I mentioned C2W!

Some schemes allow the users to pay the 10% admin fees directly to us, some allows us to add the 10% to the basic price and some (eg cyclescheme) insists that the quoted price is the lowest as advertised. Our prices are already low, we can't absorb their fees so after years of trying to talk to cyclescheme, we are still not with them but we are with 6 others. I do hope that Rob Howes' scheme will gain rapidly momentum.
In principle, the employer can recover VAT (20%), PAYE tax (20% or 40%) and PAYE national insurance contributions for both employers (13.8%) and employees (12%). A £1,000 bike can cost a 40% tax payer as little as £285 net salary sacrifice if your employers do not use third party cycle to work schemes.

 

[Wander]

A £1,000 bike can cost a 40% tax payer as little as £285 net salary sacrifice if your employers do not use third party cycle to work schemes.

Think you are probably off the mark with that calculation. How do you arrive at the £285?

 

[Woosh]

If you run a business, you can run your own C2W scheme.
Let's buy a Big Bear for £1,000
You recover the VAT: £1000 * 20/120 = £166.67
The bike costs you £833.33
You have to get £833.33 back from salary sacrifice.

Your best employee whom you give the Big Bear to is on 40% rate rate, he will get maximum benefit: 40% tax, 12% national insurance, you get 13.8% national insurance: total: 65.8% off the £833.33

Gross: £833.33
Employee's NI: £100
Employer's NI: £115
Employee tax: £333.33
Take home: £285

The net take home salary sacrifice is thus £285 spread over 12 months (£23.75 / month) if you don't want to keep some of the benefit for your business. On his payslip, deduct £50 gross a month for salary sacrifice. At the end of the year, tally up the account and charge him £15+VAT for the residual value of the bike.

 

[Wander]

Before I look at your calculations in detail, two factors that you don't seem to have taken into account:-
1. Employee on 40% tax will likely only be on 2% marginal National Insurance.
2. You've appear to have overlooked the fact that you have to charge VAT on the monthly 'rentals' to your employee.

 

[Woosh]

I agree about the 2% marginal NI for the employee.
I don't think you have to charge VAT on rentals.

It's certainly not on the guidance notice.

http://webarchive.nationalarchives.gov.uk/20101124142120/http:/www.dft.gov.uk/pgr/sustainable/cycling/cycletoworkguidance/pdf/518054/

At the bottom of page 12:

A deduction from salary or similar charge to staff in compensation for noncompletion of salary sacrifice arrangements for the loan of cycles and cyclists’ safety equipment is outside the scope of VAT. It is not consideration for VAT purposes and no output tax is due from the employer and the employee is also not required to pay VAT (see section 7).

Only the final sale bill is subject to VAT.

 

[Jimbobins]

None of these schemes will be accepted by my employeer. They are not prepared to have this kind of process within their accounting, or assets on their asset register. Its a shame as I see a significant saving for myself. over numerous years, we have tried all sorts to get them to accept a scheme, however they are just not prepared to even discuss it.

 

[Woosh]

None of these schemes will be accepted by my employeer.

Then I wish staff would form their own cooperative to buy bikes and run C2W themselves. The cooperative will need a credit license to operate. Members pay in 50% of the price that their bikes will cost. The cooperative then buys the bikes and re-imburse the employees each month as they receive money for salary sacrifice from the company.

 

[2Lazy]

Isn't the problem with all these smaller / bespoke cycle to work schemes that, unless it's one that your employer already offers, you have to persuade your employer to sign up for it? If so I imagine it will be nigh on impossible unless you happen to work for a very small company and you're on good terms with the boss. If you speak to the HR department in any big company I suspect they'll just point you to the company C2W scheme and say "that's what we offer take it or leave it". They won't have the time or inclination to set up a new C2W scheme just for one employee.

 

[Wander]

I agree about the 2% marginal NI for the employee.
I don't think you have to charge VAT on rentals.

It's certainly not on the guidance notice.
http://webarchive.nationalarchives.gov.uk/20101124142120/http:/www.dft.gov.uk/pgr/sustainable/cycling/cycletoworkguidance/pdf/518054/

At the bottom of page 12:

Only the final sale bill is subject to VAT.

This changed with effect from July 2011 / Jan 2012 as a result of the ECJ Astra Zeneca case. Since then you do have to account for VAT on the rentals.

 

[Green Commute Initiative]

Hello

I’m Rob from the Green Commute Initiative.

This is the correct information:

As a VAT registered business you can either claim the VAT back on the purchase and then at the end of the salary sacrifice issue an invoice to the employee for the gross amount of salary sacrifice including VAT. (The salary sacrifice amount includes VAT) or you can simply not claim the VAT back making a note in your accounts to this effect. We recommend the second method but either is fine. As long as the VAT is paid HMRC are happy. Call your VAT helpline to confirm.


This is the revised guidance on VAT. See section 2 at the bottom of page 2.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/457866/cycle-to-work-guidance-update.pdf


So on the £1,000 example the HR employee will save £420 (40% tax and 2% NI) An employer can give the £138 employer’s NI saving to the employee (13.8%) making the total saving £558 so the bike could cost as little as £442 but that’s the best that’s possible. Lower rate employees will save £ 320 (20% tax and 12% NI)

We tell people not to reclaim the VAT is it makes the accounting much easier.

PLEASE ALSO BE AWARE OF THIS

To get the tax benefits in a C2W scheme the employee cannot own the bike. So they have to hire it.

Any agreement that provides something where the user won’t gain ownership such as Hire purchase is a hire agreement. Any hire agreement that last longer than three months is a regulated hire agreement under the Consumer Credit Act and if you issue one without being Authorised and Regulated by the FCA you’re committing an offence. There is an exemption for C2W schemes up to £1,000 hence the limit. You can see it here: https://www.handbook.fca.org.uk/handbook/PERG/2/11.html scroll down to C2W.

So any employer issuing a hire agreement to their employee over £1,000 without being regulated by the FCA for consumer hire is committing a criminal offence.

GCI Ltd is regulated the FCA so can hire anything of any value to anyone.

 

[Wisper Bikes]

Thanks Rob,

There is a lot of misinformation being broadcast. Employees would be far safer to use the GCI and retailers would be OK to pay the small fee. This way there is no danger of getting it wrong.

All the best, David

 

[Woosh]

Hi Rob,

it seems that the VAT rule concerns scheme providers whereby the scheme providers buy the bikes, recover the VAT and collect the rents. It makes sense that the VAT should be charged on rentals.

The case before the CJEU found where an employee sacrifices salary in return for retail vouchers then the amount of salary foregone by an employee was payment for VAT purposes. Accordingly, Astra Zeneca was Page 2 of 3 July 2012 required to account for VAT on all supplies of retail vouchers made in return for salary sacrificed by its employees. Although this case was concerned with the supply of retail vouchers to employees, HMRC ruled that theVAT principles surrounding salary sacrifice are of general application and apply to other supplies of goods and services to employees, including the cycle to work scheme.

Even if the employer elects to charge VAT on rentals too their employees, the amount of rentals being less than half the acquisition cost, the benefit is 10% or more extra saving compared to not reclaiming VAT.

 

[Wisper Bikes]

It really isn't surprising employers would not want to get involved.

Leave it to the professionals!

The small fee is certainly worth paying considering the benefits and huge savings available.

Atb

 

[Wander]

Even if the employer elects to charge VAT on rentals too their employees, the amount of rentals being less than half the acquisition cost, the benefit is 10% or more extra saving compared to not reclaiming VAT.

Nope, you are confusing the issue further. The 'rental' for VAT purposes is effectively the gross amount of the salary sacrifice, not the net amount.