Bike-to-Work question
niblue
Posts: 1,387
As my employer has signed up to the bike to work scheme I'm looking into the option of taking advantage of the scheme to upgrade my current commuter bike. The way our scheme works is setup is that my employer will make a 20% contribution to the cost of the bike, meaning I'd be paying £800 if I used the full £1000 allowance. I'd then pay that off over 12 months, with the deduction being taken before tax and NI (I'm a 40% taxpayer so that'd be 40% tax and 1% NI) so, if my sums are correct, I'd ultimately be paying just under £500 for a £1000 bike.
All sounds great however I've noticed in the small print that the bike-to-work scheme is hire-only, not hire purchase, so the bike would actually still be owned by my employer at the end of the 12 month period - so effectively I'd be paying £472 to rent a bike for a year. My employer has the option to then sell me the bike at fair market value however that payment wouldn't be tax deductable so (and if they were to sell it to me at less than market value it could be regarded as taxable benefit).
If the fair market value for the bike was say £500 (or half the purchase value) after 12 months then there is almost no saving to me - particularily as the nature of the scheme means I can't save money by shopping around for the best deal on a bike or by buying 2nd hand.
Am I correct in the above?
All sounds great however I've noticed in the small print that the bike-to-work scheme is hire-only, not hire purchase, so the bike would actually still be owned by my employer at the end of the 12 month period - so effectively I'd be paying £472 to rent a bike for a year. My employer has the option to then sell me the bike at fair market value however that payment wouldn't be tax deductable so (and if they were to sell it to me at less than market value it could be regarded as taxable benefit).
If the fair market value for the bike was say £500 (or half the purchase value) after 12 months then there is almost no saving to me - particularily as the nature of the scheme means I can't save money by shopping around for the best deal on a bike or by buying 2nd hand.
Am I correct in the above?
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Comments
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The way I think it's normally done is that the company agrees in advance that the bike will be worth a nominal sum at the end of the payment period, this will be agreed before you sign up for the scheme.0
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The "normal" thing to do is sell the bike back to the employer for a very small amount. Say 5% of it's value.
Its actually up to the employer and is best agreed in advance.
If the above were true, not many people would bother with the scheme!0 -
Technically there cannot be a prior agreement to sell the bike to the employee at the end of the hire period, as that would be a hire-purchase agreement, which does not attract the tax rellief - of course this can be agreed informally but not in writing.
Your employer should also be reclaiming the VAT (if they can) and passing that saving on to you.
Cyclescheme have a simple calculator to estimate the cost to you (applies whether or not you use Cyclescheme, the sums are the same).
Normally, as said above, emplioyers charge a nominal 3% or 5% to pass ownership to the employee. The HMR&C would take the view that a fair market value be applied, which would be much more than this, otherwise it would constitute a taxable benefit, however the Dept for Transport is I believe expecting the HMR&C to turn something of a blind eye.
As far as I hear, most good employers are running the scheme without any trauma or surprises to employees, and your one seems particularly generous in stumping up a proportion of the value as well, so I think you should have few worries. This scheme only works when employers and the government enter properly into the spirit of the scheme rather sticking to the most rigid interpretations of HMR&C (or some rogue employers that plan to profit from the VAT rather than passing it to the employer).0 -
HI All,
My employer runs it's cycle scheme through Halfords. We run an 18 month hire period and the agreed price of £1 is the sum on the termination of the contract.
I think we get a pretty good deal. I am a 40% tax payer too and the real life saving seems to be very worth it, around a third off - the 18 month rental obviously drops your monthly payment massively too....
halfords will supply or source anything you want to any spec to - we can also buy a frame and components, 2 bikes and "top up" the £1000 allowance - buy a £1200 bike for example.
I don't think the organisation (?) www.cyclescheme.co.uk is as comprehensive as these "private" arrangements - The dealers have to pay a 10% fee to sign up to cyclescheme too - so you don't get any money off on sale bikes, from what I have been told by a dealer.0 -
Yes, that's right, many (though not all) Cyclescheme dealers wont pass on sale prices or discounts because of this comission. What you do get with cyclescheme is the chance to use LBS's with (hopefully) better pre-delivery setup. You also get the manufacturer's warranty. Whilst Halfords will sell virtually any bike (not Brompton's for example), they apparently won't offer a discount on non-halfords stock so you still pay full price as per cyclescheme, and warranty is via Halfords. If you are getting a bike from Halfords regular stock, and the price is discounted, then you are on to a good deal. Also, if you are after a Planet-X they only deal with the Halfords scheme.gtvlusso wrote:I don't think the organisation (?) www.cyclescheme.co.uk is as comprehensive as these "private" arrangements - The dealers have to pay a 10% fee to sign up to cyclescheme too - so you don't get any money off on sale bikes, from what I have been told by a dealer.0 -
I too am being charge £1 when my year is up in April. Ultimately its up to the employer and it should be the 'fair market value' and no, they shouldn't agree it with you in advance. But this is why the scheme is such a bl**dy brilliant idea at the moment. There doesn't seem to be a great deal of regulation (no one has contacted me or my emplyer to see if I'm using my bike on a regular basis). So if I were you I'd tell your emplyer that the 'going rate' for these schemes is 5% of the retail value and see what happens...
Crash 'n Burn, Peel 'n Chew
FCN: 20 -
I was thinking:
Boardman Comp Road Bike and Boardman Pro Hybrid Bike (£1298 - total!)
But I am now thinking:
PBK - ultegra build (£1199)
Planet X - SL Carbon (with reynolds wheels and carbon bars) (£1250)
as I am building an Ambrosio commuter....out of bits off other old bikes - so I may not need the Boardman bikes. Did some research into the limitations of the Halfords scheme and there seem to be very few limitations! In fact my employer is going to cut the amount of car parking spaces and improve the free bus service to the campus.
Still, they are all over £1000, but I am prepared to make up the difference.....0 -
gtvlusso - who is your employer? (pm me if you don't mind telling).0
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gtvlusso wrote:...Still, they are all over £1000, but I am prepared to make up the difference.....
Have you checked that you can.
AFAIK most scheme providers on advice from HMRC have removed the ability to top up the scheme amount. The reason being that if you've paid for part of the bike, then it's partly owned with the employer, and it is extremely difficult to argue that it is not a hire purchase (rather than rental) agreement.
The moment the agreement is hire purchase, all tax saving bets are off.
HTH - Rufus.0 -
Hi,
I work for a mobile phone company that is based on a very bright colour.....
Good point Rufus - not sure on it, but the suggestion from other employees was that you could add to the value of the bike yourself. £1000 is a bit limiting otherwise, puts you in a weird buying area where if you add £100 you get a load more value?!
Hmmm - I will find out.0 -
gtvlusso wrote:Good point Rufus - not sure on it, but the suggestion from other employees was that you could add to the value of the bike yourself.
If it's the Halfords scheme you may be out of luck as it's one of the schemes that HMRC leant on. Unless of course your brightly coloured employer has a suitable consumer credit licence (which I imagine it probably has for other reasons):
http://www.cycle2work.info/employers/faqs.html
Is there a maximum value to the amount of equipment employees can obtain through Cycle2Work?
There is no maximum annual tax allowance for the Cycle2Work scheme, however the Group Cycle2Work Consumer Credit License made available by the OFT for particpating organisations, permits a maximum of £1000 inclusive of VAT per employee. The employee is unable to top up on the £1000 limit to obtain a more expensive bike, but you can of course apply to the OFT for a license to offer in excess of £1000 per participant, or you may have an appropriate license already in place due to the nature of your business.
Rufus.0 -
Thanks for the updates. I've told the person administering our scheme that it's common practice for the bike to be sold to the employed for £1 at the end of the hire period and I expect they'll probably go with that.
We've only recently joined the scheme and the only person to buy a bike using it so far is our chief exec and I don't think he'd sorted out what happened at the end of the period.0 -
Alfa Blue - you clearly don't understand VAT.
EMpoyer should not be reclaiming VAT on the bikes. VAt can only be reclaimed where the item is purrchased wholly exclusively & necesarily for use in the business.
With the old computers thru work scheme HMRC agreed VAt was reclaimable in full as there was a training benefit to the empoyer of the employee being compouter literate.
The bikes are used fro home to work travel (sometimes!) which is not a business expense.Bianchi Infinito CV
Bianchi Via Nirone 7 Ultegra
Brompton S Type
Carrera Vengeance Ultimate Ltd
Gary Fisher Aquila '98
Front half of a Viking Saratoga Tandem0 -
The DOT booklet on VAT does seem to indicate that VAT can be reclaimed:
"Where the equipment is for use in a Cycle to Work scheme for employees, HRMC accept the VAT incurred is for the purpose of the business of the enployer and may be treated as input tax"0 -
niblue wrote:The DOT booklet on VAT does seem to indicate that VAT can be reclaimed:
"Where the equipment is for use in a Cycle to Work scheme for employees, HRMC accept the VAT incurred is for the purpose of the business of the enployer and may be treated as input tax"
There is no problem for the employer to reclaim the VAT
In addition the employer can claim capital allowances on the bike - which in English means they can deduct the cost of the bike from profit before tax is applied.
Therefore not only do you get a bike half price (if higher rate tax payer) your employer if a company will save approx 17% of the bike cost in saved corporation tax.
As stated above there is no limit of £1000 except the employer needs to obtain a licence to include more expensive bikes (£5K+ no problem is employer agrees!)
Also correct is many dealers are charged 10% by administrators such as cyclesheme which means they will not be in good position to offer you discount.
Best advice is to ask your dealer for the 10% discount and do your own admin.
Cheers CTW0 -
Thank you niblue, I stand un-corrected
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cycletowork wrote:In addition the employer can claim capital allowances on the bike - which in English means they can deduct the cost of the bike from profit before tax is applied.
Therefore not only do you get a bike half price (if higher rate tax payer) your employer if a company will save approx 17% of the bike cost in saved corporation tax.
Except it isn't quite as simple as that (sadly).
Because whilst the employer can get capital allowances against the bike (reducing profit) they also get a lower salary bill (increasing profit). The capital allowances for a bike won't be 100% in the time period that the employee "pays off" the bike. Therefore the profit and corp tax bill will IMHO increase, and the employer will have an asset they need to write off at disposal for probably signifcantly less than the net book value.
Rufus.0 -
Well OK I was trying to keep it simple.....
When the bike is "sold" to the employee a balancing allowance will arise so whatever has not been claimed as a written down allowance (WDA) will be available then.
Any gain or loss against book value is an accounting entry and does not effect the tax charge.
Your point on higher profit due to lower salary will indeed increase the corporation tax charge. This however will be more than offset by lower employers NI payments.
Does that make sense?
Cheers CTW0 -
I am the employer and employee (a director).
So filled in the forms and got my accountant to sort it
As far as I can work out, we saved the company VAT on the bikes and saved ourselves a bit personally through tax and NI reductions.
Nowhere near half price, but still well worth doing.0 -
Matteeboy wrote:I am the employer and employee (a director).
So filled in the forms and got my accountant to sort it
As far as I can work out, we saved the company VAT on the bikes and saved ourselves a bit personally through tax and NI reductions.
Nowhere near half price, but still well worth doing.
If you are paid a salary by your company and are a higher rate tax payer you would have saved 50%
In addition the your company could have or should have claimed capital allowances. Maybe your accountant is not an expert on cycle to work.
The scheme is not really designed to suit those with their own businesses but there are still significant tax savings to be made.
cheers CTW0 -
I work for a Credit Card company, they are unable to reclaim the VAT which really sucks, I believe the health service and charities are in the same boat.0
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cycletowork wrote:Matteeboy wrote:I am the employer and employee (a director).
So filled in the forms and got my accountant to sort it
As far as I can work out, we saved the company VAT on the bikes and saved ourselves a bit personally through tax and NI reductions.
Nowhere near half price, but still well worth doing.
If you are paid a salary by your company and are a higher rate tax payer you would have saved 50%
In addition the your company could have or should have claimed capital allowances. Maybe your accountant is not an expert on cycle to work.
The scheme is not really designed to suit those with their own businesses but there are still significant tax savings to be made.
cheers CTW
I think he did indeed claim capital allowances. He basically sorted it and earns his pay about ten times over with the amount he saves us
We jussst scrape into the higher tax rate bracket and save the rest in the company.0 -
My employers are now agreeing to pass the VAT savings on to me as well as contributing 20% themselves, then sell me the bike at the end of the rental period for 5% of the market value. That means I can get a £1000 bike for about £400-450 so it's a pretty tempting deal.
Not that I actuallly need a new bike of course...0 -
er, tricky, but I would start from the basis that it would be foolish not to get one, you would actually be throwing free money away!0
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Gave up 4 days holiday for mine!!!0
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alfablue wrote:er, tricky, but I would start from the basis that it would be foolish not to get one, you would actually be throwing free money away!
That's the approach that I was planning. If that doesn't work then I'll offer to sell one of my existing bikes (probably my OCR3) to keep the total number the same!0 -
I'd assumed reclaiming VAT was the main benefit to employers. At least, from what I can tell, my employer doesn't give a damn about my health so there must be some other reason why they're loaning me a £600 bike?
MR0
but I still stand to save £410 on a £1000 bike 
