Cycle 2 Work scheme – how does it really work?

gabriel959

Hey guys/gals,

Just started paying for my new bike through cyclescheme this month but it is either a bit crap or not very clear so was hoping for one of you to enlighten me because I am still a bit clueless of how it works.

I requested a voucher for £1000 and exchanged it for the bike
My payslip came and shows a deduction of £72.46 – well for a period of 12 months – 72.46 x 12 = £869.52
So basically I am saving £130 over the £1000. That is only 13% of £1000 not the claimed 30% to 50%.

If I have a look on the CycleScheme website and run through the calculate savings tool they’ve got it says the following

Your tax calculation:
Personalised for employees of xxxxxxxx
-Total cost of bike and accessories: £1,000.00
-Net cost of bike and accessories, including finance and admin costs (if applicable): £869.57
-Income tax saving over hire period: £173.91
-NI saving over hire period: £95.65
-Final cost of bike & accessories: £600.01
-Total saving:** £399.99
-Gross salary sacrifice, based on 12 month hire period (this should be the figure displayed on your hire agreement): £72.46
-Net salary sacrifice, based on 12 month hire period: £50.00
-Percentage saving over RRP: 40%

By the way, I don’t work for a government institution but for a private company.

flamite

they take the £72 gross, which works out as £50 cost to you, as it is taken before the tax is taken off...

i think.

Wallace1492

Your deduction is taken off before you pay income tax, therefore you do not pay tax on the 72.46, thereby saving 40% (if higher tax payer) on this amount. Yes, you pay 869.52 back, but you have not paid any tax on this, hence the saving.

gadgets

The £130 is the VAT savings. The £72.46 is deducted from your gross pay amount therefore the actual amount taken out from your take home pay will be £50. So essentially you are only paying £600 for the £1000 worth of goods you purchased using the voucher from your LBS

JonS123

If you compare the figure that hits your bank account with last months it should all make sense

gabriel959

My figure in my bank account reads £72.46 less than less month - is that correct?

Wallace1492

You should not have the 72 less, it should be 50 less after tax.

gabriel959

Wallace1492 wrote:

You should not have the 72 less, it should be 50 less after tax.

Well, I have spoken to the Finance and HR ladies and both say that is correct!!!

Eau Rouge

gabriel959 wrote:

My figure in my bank account reads £72.46 less than less month - is that correct?

You'll have to look at your payslip and compare it to last month. You should be paying less tax and NI as your taxable income should be £72.46 less than last month.

If it's not, your company is costing themselves money by not being able to save on their own NI contributions for employing you, one of the main benefits of the scheme.

the_hundredth_idiot

Some other reason for the change from last month and just coincidence it works out the same? Alternatively, Finance and HR have been known to get things wrong!

As others have said, £1,000 bike less VAT is £869. (It's good that your bike gives you the VAT back - not all do.)

Over 12 months this is £72 pm out of your GROSS pay. So you should pay less tax (as your gross pay is effectively lower).

If you aren't paying less tax, somebody somewhere (Finance and/or HR) has done something wrong.

spen666

The Hundredth Idiot wrote:

Some other reason for the change from last month and just coincidence it works out the same? Alternatively, Finance and HR have been known to get things wrong!

As others have said, £1,000 bike less VAT is £869. (It's good that your bike gives you the VAT back - not all do.)Over 12 months this is £72 pm out of your GROSS pay. So you should pay less tax (as your gross pay is effectively lower).

If you aren't paying less tax, somebody somewhere (Finance and/or HR) has done something wrong.

Which bike should I choose to get my VAT back and which bike refuses to return the VAT? :oops: :oops: :oops: :oops: :oops: :oops: :twisted: :twisted: :twisted: :twisted:

gabriel959

Are you guys completely sure about this? I really don't understand this stuff that much and had a short meeting with the Finance manager to explain why that £72.56 is correct. I want to word an email clear enough so they get this right. Do you think if I call Cyclecheme direct they will give me an answer?

I don't want to look like a numpty twice now - if I am going to have the facts I want to have them clear as it could be very embarrasing.

Thanks for all the help though - really appreciated!!!

Wallace1492

spen666 wrote:

The Hundredth Idiot wrote:

Some other reason for the change from last month and just coincidence it works out the same? Alternatively, Finance and HR have been known to get things wrong!

As others have said, £1,000 bike less VAT is £869. (It's good that your bike gives you the VAT back - not all do.)Over 12 months this is £72 pm out of your GROSS pay. So you should pay less tax (as your gross pay is effectively lower).

If you aren't paying less tax, somebody somewhere (Finance and/or HR) has done something wrong.

Which bike should I choose to get my VAT back and which bike refuses to return the VAT? :oops: :oops: :oops: :oops: :oops: :oops: :twisted: :twisted: :twisted: :twisted:

Its not the bike that give the VAT back, but the employer, as they buy the bike, then deduct 12 monthly payments from your salary. The Employer, claims back the VAT, passing the saving on to the employee.

Wallace1492

gabriel959 wrote:

Are you guys completely sure about this? I really don't understand this stuff that much and had a short meeting with the Finance manager to explain why that £72.56 is correct. I want to word an email clear enough so they get this right. Do you think if I call Cyclecheme direct they will give me an answer?

I don't want to look like a numpty twice now - if I am going to have the facts I want to have them clear as it could be very embarrasing.

Thanks for all the help though - really appreciated!!!

This month, you should be deducted the 72, but should not pay tax on it, hence your gross pay, is it is exactly the same as last month (all months can be different) should only be 50 less. The tax deducted on your payslip should be different to last month i.e. less. If it is the same, then finance/HR have made an error.

gadgets

gabriel959 wrote:

Are you guys completely sure about this? I really don't understand this stuff that much and had a short meeting with the Finance manager to explain why that £72.56 is correct. I want to word an email clear enough so they get this right. Do you think if I call Cyclecheme direct they will give me an answer?

I don't want to look like a numpty twice now - if I am going to have the facts I want to have them clear as it could be very embarrasing.

Thanks for all the help though - really appreciated!!!

Hi gabriel959 - the £72.56 deduction should be a pre tax deduction just like a personal pension salary sacrifice. Have the payroll person confirm that they have deducted this before taxes rather than after taxes.

JonS123

IT may make things easier to figure out if you are able to list last months pay slip entries and this months?

Monkeypump

Cyclescheme has a deductions calculator on their website - use this and you'll see what should come out.

They are also quite helpful, so give them a call and they'll talk you through it. They do offer this service as part of the administration of the scheme, so they should also be able to talk to your HR dept if necessary.

This method of paying is known as 'salary sacrifice', so HR/Finance/Payroll should be able to get this right. Essentially it's not £72.46 coming out of your salary as a deduction, you're actually being paid £72.46 less each month so tax/NI etc will be taken from a smaller salary amount (hence the additional saving).

I'm waiting for my deductions to start in the next month or so, so hopefully this will work for me (fingers crossed)!

andrewlwood

What they said. I've just done the same thing with a similar amount - I'm a higher rate taxpayer, so I save close to 50% on my bike. The £950 I spent works out at under £40 NET over the 18 month installments. It sounds like your HR team has got it wrong if you have £75 less to spend each month (as opposed to £75 GROSS, which would be correct).

Also check what your employer will charge you to own the bike at the end of the 12 months - it's at their discretion whether they charge you market value or something less (my employer charges me a 19th payment).

gabriel959

Well I spoke to Cyclescheme at lunchtime where they (Paul) told me that I should be paying £50 net off my take home pay – not £72 – so with this information I go to Finance but the lady there (to be honest, pretty calm and nice!!) tells me that apparently our company does tax differently and that we do it externally through a payroll agency and she reckons that I should be paying £72 not £50. But she is going to call Cyclescheme just to double check!

Wallace1492

gabriel959 wrote:

Well I spoke to Cyclescheme at lunchtime where they (Paul) told me that I should be paying £50 net off my take home pay – not £72 – so with this information I go to Finance but the lady there (to be honest, pretty calm and nice!!) tells me that apparently our company does tax differently and that we do it externally through a payroll agency and she reckons that I should be paying £72 not £50. But she is going to call Cyclescheme just to double check!

Garbiel, did you notice that was your 666th post!!! Get the burning crosses out!!

the_hundredth_idiot

spen666 wrote:

The Hundredth Idiot wrote:

Some other reason for the change from last month and just coincidence it works out the same? Alternatively, Finance and HR have been known to get things wrong!

As others have said, £1,000 bike less VAT is £869. (It's good that your bike gives you the VAT back - not all do.)Over 12 months this is £72 pm out of your GROSS pay. So you should pay less tax (as your gross pay is effectively lower).

If you aren't paying less tax, somebody somewhere (Finance and/or HR) has done something wrong.

Which bike should I choose to get my VAT back and which bike refuses to return the VAT? :oops: :oops: :oops: :oops: :oops: :oops: :twisted: :twisted: :twisted: :twisted:

Oops! Good spot - does make the sentence somewhat nonsensical. Just to be absolutely crystal clear, my fat fingers bizarrely typed the word "bike" when they should have typed the word "company". And now I'm going back to my desk to keep on smoking that good schtuff.

the_hundredth_idiot

My employer (not bike ) effectively gives (most of) the VAT back by adding 15% to the voucher to be used for accessories (mine went on a cycle computer, pedals, and better lock).

Given that I would have had to spend money on those things anyway, it means that the £1,000 gross cost of my bike kind of only cost me £440 net. The £1,000 gross nets down to £590 (taken in 24 monthly chunks = £24.58 pm net) - then take off the extra £150. Cycle to Work really is a fantastic deal if your employer can be persuaded to implement it.

And my (unwritten, informal) understanding is that my employer won't make me pay anything at the end of the period.

gabriel959

Problem solved guys!!!

Thanks a lot for your really helpful comments

DevUK

Solved? Did they sort out the tax for you then?

gabriel959

Apparently the payroll company was getting it all wrong and not only for me but for a lot of people so the Supervisor apologised and next month I will get this month’s money back. Apparently my previous bike I purchased also had some strange stuff going on and am going to get a nice extra that I will use on my two ladies

Happy days!!!

DevUK

Ace! Congrats Makes me want to check mine now...

Specialized Needs

gabriel959 wrote:

Apparently the payroll company was getting it all wrong and not only for me but for a lot of people so the Supervisor apologised and next month I will get this month’s money back. Apparently my previous bike I purchased also had some strange stuff going on and am going to get a nice extra that I will use on my two ladies

Happy days!!!

Good news. Glad it was sorted out (I had fun trying to explain pre-tax deductions to my wife last year)

I hope that they not only refund any excess charges they made, but also some additional recognition for the 'loss of use' of that money over time.