Ive dropped you an email David

 

Thanks Andy, I'll get back to you.

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.

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?

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.

Edited April 10, 20179 yr by Woosh

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.

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.

Edited April 10, 20179 yr by Woosh

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.

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.

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.

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.

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.

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

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.

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

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.

it's not difficult, David. In my view, a self administered scheme is a lot simpler than signing up with one of the providers. Do you know how many pages the contract with cyclescheme has?

If sites like pedelecs.co.uk take on the task to explain to employers that it's not difficult then we may get thousands of small entities to take it on. Employers download a sample contract, fill in name and address, the monthly salary sacrifice is set to 5% for 12 months.

It can be that simple.

i the monthly salary sacrifice is set to 5% for 12 months.

It can be that simple.

Well only if the employer (ignoring employer's NIC) doesn't mind bearing 40% of the cost!

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.

 

In case that the employer elects to charge VAT on rentals:

Let's calculate for example someone on basic tax rate wanting to get a Big Bear for £1,000.

Purchase: £1,000

Salary sacrifice in 12 months (60% of purchase price): £600

Employee tax @ 20%: £120

Employee NI @ 12%: £72

Employee net deduction: £600 - £120 - £72 = £399

(£33.25 a month for 12 months)

 

Let's calculate the net balance from the employer's perspective:

Purchase price: £1,000

recover VAT: -£166.67

VAT due on rentals: £399 * 0.2 / 1.2 = £66.50

Recover from salary sacrifice: -£600

Saving on employer's NI at 13.8%: -£67.50

Net disbursement: £1,000 - £166.67 + £66.50 - £600 - £67.50 = £232.33

 

The employer sells the bike at £232.33 + VAT = £278.80

 

The Big Bear costs the employee net £399 + £278.80 = £677.80

Saving: £322.20 over £1,000

 

If you increase the sacrifice from 5% to 8% of the purchase price, you can increase the saving.

If anyone wants to check out the numbers, here is a spreadsheet I just made for C2W with VAT:

 

http://wooshbikes.co.uk/C2W-with-VAT.xls

 

You can test with different amount in the purchase price and gross monthly sacrifice to see how much saving you can make.

For a basic rate tax payer, the optimal gross monthly sacrifice is £67.

Net savings: 44.2%

For a 40% tax payer, the optimal gross monthly sacrifice is £66.

Net savings: 53%

If you are a VAT registered business you must account for the VAT on the service you provide. Since the Astra Zeneca ruling, VAT is payable on the gross salary sacrifice regardless of who owns the bikes. We advise people who are unsure to call the VAT / HMRC helpline to get a definitive answer. They are really helpful. 0300 200 3700

If you are a VAT registered business you must account for the VAT on the service you provide.

Of course that makes sense. However, there are a lot of benefits in kind like company cars where the employees are not charged VAT.

I have produced a spreadsheet for those who want to investigate running their own C2W scheme in the previous post, with VAT. The maximum saving for basic rate tax payers is 44.2% and 53% for 40% tax payers.

My contention is that millions of people working for small businesses employing a handful of staff lose out on this because it's not worth the effort for small businesses to contract out C2W. Retailers, especially mail order retailers also lose out because their margin is already too small, employees lose out because the third party schemes do not maximize savings for them. Millions of staff can benefit if sites like this one participate into making self administered schemes an easy to follow process.

GCI is pretty simple for the employer.

 

They pay us what the reseller charges for the bike. We don't dictate pricing. We’re open about what we charge resellers. (5% of the sale price)

 

We create and send out all the agreements for electronic signature and then send the employer the amount of the salary reduction.

 

So all they have to do is pay us and make the salary reduction. Takes the average employer about 10 minutes because we do everything else.

 

There's no risk to the employer of wrong information or documents that will cause them a problem. C2W agreements are subject to lots of legal requirements such as the distance selling regulations, employment law, and of course the consumer credit act.

 

You may not need to be FCA authorised for less than £1,000 but you are still subject to the Consumer Credit regulation. If a disgruntled employee goes to the Citizen’s Advice etc your agreements need to be correct. Otherwise you can’t enforce them. If they are for more than £1,000 and you’re not FCA regulated then the FCA will pursue you and they have teeth.

 

Also agreements need to comply with the regulations or the employee may lose the tax break. Things like ownership, part ownership etc can all cause a problem and a discussion with HMRC.

 

From a reseller’s point of view GCI is really fast with the money in their account often within a couple of hours of us being paid. We have lots of happy customers and resellers.

 

Don’t get me wrong I have no problem with employer’s doing their own thing. We’ll even provide advice but it’s like everything else the Devil is in the detail.

 

Oh! And we don’t charge employees the 7% end of scheme fees our competitors do. We also manage the whole process so nothing for employers to do.

However, there are a lot of benefits in kind like company cars where the employees are not charged VAT.

That's like saying 'However on a Tuesday I normally have fish for tea'.

 

i.e. it may be true but has absolutely no connection with the issue being discussed here.

That's like saying 'However on a Tuesday I normally have fish for tea'.

 

i.e. it may be true but has absolutely no connection with the issue being discussed here.

I did quote the relevant paragraph in the guidance regarding VAT that is applicable when your company signs up with a scheme provider whereby there is a provision of a voucher:

 

There has been a VAT update following the Astra Zeneca court case, where the European Court of Justice made a ruling stating that the provision of retail vouchers amounted to a supply of services effected for consideration of VAT.

 

The guidance document says nothing about charging VAT on rentals when your company runs your own scheme. The previous guidance (2011) clearly stated 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).

 

It follows that if your company runs a self administered scheme, they may elect not to charge VAT.

The total amount of VAT on rentals in a not for profit scheme is about £67.

There's a couple of aspects of GCI's scheme that don't make sense to me?

 

Firstly, it is the employer who provides the credit. To utilise your licence, GCI must provide the credit, so presumably are doing so on an interest free basis?

 

Secondly, you appear to claim there are no exit fees, so how do you deal with HMRC's market value guidance (especially as I recall that did not apply to bikes of over £1,000).

 

I do know my way around this scheme, having set up my employer's and now being on my third bike. We also benefit from a CC licence.