Cycle to work scheme

megilleland

If you are buying a bike using your employers cycle to work scheme, you may be under the impression that you will pay around half the usual price.

But advice given to employers by HM Revenue & Customs (HMRC) in August means that many people will end up paying £200 more than expected.

Listen to this Radio 4 MoneyBox Programme podcast broadcast last week. Information also here:

spen666

To be fair to HMRC, they have not changed the rules of the scheme

all that has happened is they have issued guidance regarding the abuse of the scheme- namely the final value of the bike. The scheme has always been that there needs to be a final payment of the fair market value of the bike to own the bike.

Most schemes that were set up abused this by either
1. Fixing the final value before the scheme started (actually takes bike out of C2W scheme) OR
2. Setting unrealistically low final valuations.

There is then a degree of panic and mis information about this and the extra cost of £200 is a nonsense and not what is needed at all.

If the final value of the bike is say £200, then if the bike is given to you by your employer, then you are liable to be taxed on the benefit - namely you pay tax on the £200 -ie £50 is paying @25% tax.

If the employer is charging you £200, then the employer is ripping you off as they havre already recovered the value of your bike from the monthly payments.

i'm with HMRC on this

Stick8267

I'm sure I am being thick but I don't understand this.

I bought £1 000 worth of bike and accessories and paid back £100 a month for 10 months out of my pre-tax salary. Job done!

What I thought was unfair was that as I am a higher tax payer I effectively got 40% off whereas many others I work with only got 25% off. It struck me that the less you needed the scheme the more you profited from it.

Have I got things completely wrong?

HebdenBiker

Stick8267 wrote:

I'm sure I am being thick but I don't understand this.

I bought £1 000 worth of bike and accessories and paid back £100 a month for 10 months out of my pre-tax salary. Job done!

What I thought was unfair was that as I am a higher tax payer I effectively got 40% off whereas many others I work with only got 25% off. It struck me that the less you needed the scheme the more you profited from it.

Have I got things completely wrong?

If you bought £1000 of goods and paid £100x10 months, then you have received no benefit at all, and I would go back to the scheme provider and ask them to check their figures.

As for your general point, yes you're right, HR taxpayers receive more tax relief. This is regressive rather than progressive taxation, so yes, you could argue that it's not fair.

bompington

HebdenBiker wrote:

Stick8267 wrote:

I'm sure I am being thick but I don't understand this.

I bought £1 000 worth of bike and accessories and paid back £100 a month for 10 months out of my pre-tax salary. Job done!

What I thought was unfair was that as I am a higher tax payer I effectively got 40% off whereas many others I work with only got 25% off. It struck me that the less you needed the scheme the more you profited from it.

Have I got things completely wrong?

If you bought £1000 of goods and paid £100x10 months, then you have received no benefit at all, and I would go back to the scheme provider and ask them to check their figures.

As for your general point, yes you're right, HR taxpayers receive more tax relief. This is regressive rather than progressive taxation, so yes, you could argue that it's not fair.

The point is that if you pay £100 pre-tax, your net pay is (if you're a 40% payer) £60 less. And it's not a regressive tax, it's just a bit less progressive - 40% tax payers still pay more tax.

HebdenBiker

bompington wrote:

The point is that if you pay £100 pre-tax, your net pay is (if you're a 40% payer) £60 less. And it's not a regressive tax, it's just a bit less progressive - 40% tax payers still pay more tax.

Aye - you're quite right. You've explained it better than I did.