Cycle to work Scheme

PGM

Does anyone know much about this?

I've been asked to look into it, just wondered about the benefits/hassles of it.

thanks

Bluewednesday

As far as I understand (husband in the cycling industry) it is becoming less attractive because they are taking away the ability to reclaim VAT on the bike, not sure when that is happening but it appears to be inevitable.

I'm pretty sure Monsoon has actually done this recently so sure she will be able to advise on pitfalls and bonuses!

PGM

I've been doing a bit more reading.

From 1st Jan 2012 vat will have to be accounted for on the salary sacrifice by the employee.

So this vat benefit has been lost!

When the bike is sold to the employee at market value, vat is on that amount.

What I'm not sure about; is the amount you pay for by salary sacrifice reduced by the amount you expect to pay at market value. I'm assuming you can do this!

Monsoon

PGM wrote: »

What I'm not sure about; is the amount you pay for by salary sacrifice reduced by the amount you expect to pay at market value. I'm assuming you can do this!

That I don't know. I've not looked into the salary sacrifice aspects of it.

All I know is that I'm glad I got my bike this year

PGM

Monsoon wrote: »

That I don't know. I've not looked into the salary sacrifice aspects of it.

All I know is that I'm glad I got my bike this year

How does it work for a self employed person?

I've read a few articles and nothing is specific about the salary sacrifice, maybe because you're renting the bike from your employer in effect, and not actually buying it. Until you decide to buy it at the end of the contract at market value.

payrollpro

Hi guys,

First off the self employed cannot do it, this is only for people in an employment contract.

The employee must not own the bike, it is obtained by the employer and the employee is allowed the use of the bike for the period of the contract on a S/S basis. The payment made is achieved through the creation of a new employment contract in which the employee must agree to a lower salary in return for the use of the bike and this is critical to it succeeding. This is the definition of S/S.

At the end of the contract the employee has the option to purchase the bike at its market value but you can use the published tables instead. Important thing is to make sure the transfer price is not mentioned in the original documents except you can say that the transfer will take place at the value laid down by HMRC at the point of transfer.

Following the recent VAT case (Astra Zenica) the very fact that the employee suffers a pay reduction in the arrangement is demed in EU purchasing law to be an acquisition charge and therefore if the employer wants to reclaim VAT on the arrangement he must charge VAT as part of the calculation of the S/S value. The employer can give up the right to reclaim VAT, in which case no VAT has to be accounted for when the payroll is run.

As long as the transfer price is the same as, or less than the market value or the published values then there is no transfer of asset reporting and as long as the rest of the rules are followed there is no other P11D implication.

The salary sacrifice can be achieved by implementing the new salary or by showing an adjustment to the existing, pre sacrificed salary instead. The pre sacrificed salary can be used for pension contributions, overtime and anything else not related to the use of the bike.

Beware, many of the standard cycle to work schemes from suppliers are not compliant and it is the employer who will get done for the non compliance.

Payrollpro

PGM

Thanks payroll pro, very informative!

One small question; does it matter how much the S/S is calculated? What if the company under recovers the value of the bike, is there any BIK?

Monsoon

I was under the impression a S/S is not mandatory; if the employer wants to foot the bill for the bike then they can do. I did a lot of reading up on this ages ago when I was looking into it and didn't see anything about compulsory s/s.

janwal

We run a cycle to work scheme, the employee chooses a bike upto £1000, we then purchase a voucher through a company called Cyclescheme, & the voucher is exchanged for the bike, the money is then deducted from the employee wages on a monthly basis, under salary sacrafice, I don't know too much how much the saving is but I am doing my AAT scheme and paying my share back to the company under ss & i saved about 6% on the total yearly cost. I think for the cyclescheme someone said 5%.

payrollpro

To be honest I have no idea what happens if the S/S does not operate. The idea is that the employer makes a bike available for the employee to use to commute to and from work. Most employers won't agree to this at their whole cost so that's why S/S came about with it.

Employees also need to understand that having contracted the whole scheme out there is usually a credit agreement involved somewhere in the scheme and that usually knocks out the under 18's. If that happens then HMRC treat the scheme as not being available to all staff and therefore it fails the exemption. Use of asset kicks in then.

Answer is to have a number of pool bikes available, but it all starts getting messy then.

PGM

Thanks for the info. Think I'm informed enough now for when we discuss it.

deanshepherd

There is no requirement for the bike to be provided under a salary sacrifice arrangement.

This is just how HMRC envisaged the scheme being used.

I too have my own bike purchased under this scheme.

PGM

deanshepherd wrote: »

There is no requirement for the bike to be provided under a salary sacrifice arrangement.

This is just how HMRC envisaged the scheme being used.

I too have my own bike purchased under this scheme.

There's one thing that still puzzles me;

Does the payment from the employee have to equal the cost of the bike, plus FMV final payment?

All the examples show the employee paying back 1/12 of the bike cost per month over a 12 month agreement. And then could be liable up to 25% market value payment.

Or could the employee do a salary sacrifice of 1/12 x 75% over 12 months. Then the FMV payment being the balance. For example.

I do think the scheme could be simpler! They've obviously gone out of their way so it only benefits commuters, or else it would have been much simpler to just scrap vat on all bikes.

Monsoon

They changed the rules so you can't "save" the VAT any more.

I don't know much about the salary sacrifice/ loan/ final value payment part.

All I know is that I have a bike, and my business paid for it

PGM

Monsoon wrote: »

They changed the rules so you can't "save" the VAT any more.

I don't know much about the salary sacrifice/ loan/ final value payment part.

All I know is that I have a bike, and my business paid for it

It was a shame about the vat, it was a half price bike until then

I just want to get my head around the rules fully and try and implement it at work.

Monsoon

Yep! Mine was cheap as chips

Lots of chips. I'd be quite, quite fat if I ate that many chips all in done go

Before I did it, I spent a lot of time reading up on the HMRC manuals on how to do it right and got most of the info I needed from there (and all the salary sacrifice stuff is in there too).

PGM

5) Setting up a Cycle to Work Scheme
To help employees take advantage of this tax-free benefit, an employer can simply buy a cycle and cyclists’ safety equipment and loan it to an employee for qualifying journeys to work. This arrangement means that the employee's normal salary arrangements are not affected and is sometimes referred to as a ‘salary plus’ arrangement. It may be, however, that the employer wants to recover the cost of providing the cycle and safety equipment loaned to the employee. Usually this would be done through a salary sacrifice arrangement.

http://www.dft.gov.uk/publications/cycle-to-work-scheme-guidance/

So it seems a company can loan the bike to an employee at absolutely no cost to the employee! If the company was very generous..

I think that answers my original question. That you can use HMRC's %'s to calculate fair market value, deduct this future anticipated amount from the cost of the bike, and recover only the balance through a salary sacrifice scheme.

The downside is you don't get tax savings on the fair value market payment.

Or is it better to just recover the full value of the bike from salary sacrifice and worry about charging them the market value if / when they leave...