cycletowork scheme

tmsbird

Hi, everybody, Just a quick question. I've just finished my scheme, I borrowed £1000 and I've just worked out that I've paid back £972 and now they want a one off payment of £250 or £70 for the next 3 years 'continuation agreement'. So at the moment I fail to see that I saved any money at all. Whats the difference if I'd just had an interest free loan?
Can anybody shed any light on this for me please. I was about to buy another bike but I don't see the point.
Cheers

pdw

How have you ended up paying back £972?

Typically the amount you pay back would be based on the ex-VAT price of the bike, which would have been £850 last year. Your payments would then come out of your pre-tax pay, and even if you paid off all £850, it would have effectively cost you something like £587.

If your employer is not VAT registered, then the amounts to pay back would have to be based on the full price, but you still get the saving of not paying tax on that part of your income.

Are you taking into account the fact you've saved a bunch of income tax and NI contributions? Or have the payments really come out of your post tax pay? If so you've been screwed and need to get your payroll people to sort it out.

jeremyrundle

I have always shown concerns over CTW scheme, personally I don't believe it works, or if it does I personally know two people who are in lumber, paid seven months and then lost their jobs............ :!:

Cash for me.

jeremyrundle

pdw wrote:

Are you taking into account the fact you've saved a bunch of income tax and NI contributions? Or have the payments really come out of your post tax pay? If so you've been screwed and need to get your payroll people to sort it out.

What do you consider to be "saving a bunch!"

The Rookie

Whatever you pay in income tax, so for a 40% taxpayer, the bunch will be - obviously - 40%!

I suspect the OP is looking at pre-tax deductions not the gross post tax effective deduction.

Simon

tmsbird

I work for the BBC so the money comes out every month, but I have to say it does vary somewhat. It does get taken out before tax etc. They were taking out £70 ish then it went up to £129 for 2 months then back to £72, and a last payment of £12. Total £972. Who's responsible cyclescheme or BBC?

sc999cs

The Beginner wrote:

Whatever you pay in income tax, so for a 40% taxpayer, the bunch will be - obviously - 40%!

I suspect the OP is looking at pre-tax deductions not the gross post tax effective deduction.

Simon

Actually higher than that because I think you get NI relief as well, so that is at least 9% extra depending on your code (although I might be wrong).

This site http://www.cycle2work.info/siteemployeeindex has a calculator so the OP can check the figures themselves, but for a lower rate tax payer it works out similar to this:

Example tax savings, based on 12 month hire period:

Total cost of bike and accessories: £ 1,000.00
Gross cost of bike and accessories : £ 1,000.00
Estimated income tax saving:: £ 199.99
Estimated NI saving: £ 109.99

Final cost of bike & accessories: £ 690.01
Estimated Tax and NI saving:** £ 309.99
Estimated gross salary sacrifice: £ 83.33
Estimated net salary sacrifice: £ 57.50

Percentage saving over RRP: 31%

** Please note: any savings indicated by this calculator may not be representative of your personal taxation or your company scheme.

If the OP has been charged £972 net then I second pdw and suggest getting onto payroll immediately.

Blandiblub

I *think* you have to knock off your income tax for the 'true' amount taken. You would never have actually got £972 if you weren't in the scheme - you'd have got that less your tax/NI.

EDIT - the fluctuating repayments sound a bit odd though...

jeremyrundle

The Beginner wrote:

Whatever you pay in income tax, so for a 40% taxpayer, the bunch will be - obviously - 40%!

I suspect the OP is looking at pre-tax deductions not the gross post tax effective deduction.

Simon

Obviously!, to someone who works perhaps, as I do NOT pay tax I asked a simple question, as a carer of three disabled sons I work at home raising them so not "obvious" to me.

So are we talking about 30,35,40% of the value of the bike, the difference between the cost and the depreciation, or what.

If a bike was £1k in the shops what savings could a standard taxpayer make CTW.

Thank you ss999cs, I think I understand so are you saying that on a 1K bike you save approx. £300 :?:

The Rookie

Saving depends on what rate tax you pay, if your a 40% payer then its 40% plus 1% NI, if your a lower rate payer is the lower rate tax plus 11% NI.

The £972 is pre-tax so isn't how much less than how much you would have been paid (into your pocket) if you weren't paying for the bike.

Simon

phillipjohnson

You have to remember the high final payment now as well... so what are you really saving?

Using the example above of payments pre tax of around £850 which would be around £600 after tax if you got the money rather than being in the scheme.

Sounds great but then you get stuck with a payment of 25% of the bike which surely just takes it back up to the £850 you had paid pre-tax?

Surely you are just deferring the tax payment and thats what you effectively pay at the end.

Go for interest free finance which lots of bike shops offer. You don't have a large final payment and if you move jobs etc you don't have to pay off everything in one go. I know somebody who was on C2W and when they left their job their final payslip wasn't enough to cover the amount they owed on C2W so not only did they go a month without any salary they had to pay an additional fee to their ex employer.... on interest free finance they would just be paying about £75 a month for a year for a thousand pound bike after a 10% deposit.

rolf_f

phillipjohnson wrote:

Sounds great but then you get stuck with a payment of 25% of the bike which surely just takes it back up to the £850 you had paid pre-tax?

Which is why you now pay about 7% to transfer the hire from your employer to the C2W company and continue to hire it (at no further cost) until the value is deemed to have reached the 7% transfer rate.

Therefore, the savings are much as they were before but you have to wait longer until you officially own the bike. So, assuming your C2W company does this, the scheme is worth 2% less than it was a year ago. Not that much of a change.

pdw

If a bike was £1k in the shops what savings could a standard taxpayer make CTW.

This varies according to how the scheme is set up. The tax break is not a hire purchase scheme. You are renting a bike from your employer, and then independently buying it from them later. There's no requirement that the rental payments add up to the cost of the bike, so companies are free to set the rental payments however they choose. The payments are typically set so that over the rental period you pay back most if not all of the cost of the ex-VAT cost of the bike.

In fact, if you set the scheme up like that, the company actually makes money out of it, because it doesn't have to pay employers NI on the payments either. There's no reason why that saving can't be passed on to the employee giving them greater savings.

Our company scheme is set up this way so that standard rate tax payers can expect to see a 43% saving and higher rate tax payers just over 50% saving.

To answer the OP's question: when calculating the savings you've made, you need to take into account the tax that you would otherwise have paid on that £972. The fact that they're varying is very odd. You should go and check the paperwork that you signed at the beginning of the scheme which should detail exactly what your monthly payments were going to be.

C2W can be very effective if implemented properly, but you need to be really clear about what you're signing up to. You sign a 12 month rental agreement with no guarantee that you can buy the bike at the end of it. Further, you're only allowed to pay the rental out of your pretax earnings for as long as you're using it for commuting or for work purposes. If your employment ceases, so does the tax break - but you're still on the hook for the remaining rental payments.

Headhuunter

tmsbird wrote:

I work for the BBC so the money comes out every month, but I have to say it does vary somewhat. It does get taken out before tax etc. They were taking out £70 ish then it went up to £129 for 2 months then back to £72, and a last payment of £12. Total £972. Who's responsible cyclescheme or BBC?

Yeah but you can't simply add up al the payments that have come out, add them together and that gives the cost because it's being deducted before tax and NI so you wouldn't have earned all that money anyway....

kelsen

jeremyrundle wrote:

The Beginner wrote:

Whatever you pay in income tax, so for a 40% taxpayer, the bunch will be - obviously - 40%!

I suspect the OP is looking at pre-tax deductions not the gross post tax effective deduction.

Simon

Obviously!, to someone who works perhaps, as I do NOT pay tax I asked a simple question, as a carer of three disabled sons I work at home raising them so not "obvious" to me.

So are we talking about 30,35,40% of the value of the bike, the difference between the cost and the depreciation, or what.

If a bike was £1k in the shops what savings could a standard taxpayer make CTW.

Thank you ss999cs, I think I understand so are you saying that on a 1K bike you save approx. £300 :?:

http://www.bikeradar.com/forum/viewtopic.php?t=12772140

jeremyrundle wrote:

ride_whenever wrote:

You can't do it precisely because of people like yourself who take the wee-wee.

100% agree, what would you like next, perhaps a stay at a holiday park to brush up on cycle skills :!:

I am happy to pay taxes for genuine riders but there are always a few who want more...

I'm confused Jeremy. Do you pay taxes or not :?:

t4tomo

whatever, if you work from home jeremy then clearly C2W and discussionn thereof is irrelevent to you.

pdw

t4tomo wrote:

whatever, if you work from home jeremy then clearly C2W and discussionn thereof is irrelevent to you.

Not quite true - the tax break also applies to bikes used primarily for work purposes other than commuting. But as it's a tax break, you do need to be paying tax for there to be a saving.

Headhuunter

I really couldn't give a crap if people buy sat nav systems or whatever through C2W, in the grand scheme of things as far as tax evasion goes, there are far, far bigger fish to fry. Corporations and wealthy individuals evade paying billions of pounds in tax every year through perfectly legal tax loopholes. If the man in the street saves a couple of quid in tax and gets some enjoyment out of a Garmin then what do I care. I think HMRC needs to pick its battles and stop rearranging the deckchairs on the Titanic....

t4tomo

couldn't agree more headhuunter, starting with Vodaphone's complete let -off of it tax "planning"/evasion.

pdw

Corporations and wealthy individuals evade paying billions of pounds in tax every year through perfectly legal tax loopholes.

No they don't. They avoid paying tax though legal loopholes. It's a critical distinction.

For example, suppose I was planning to buy a nice shiny GPS in January of this year. But I spotted that VAT was going to rise in January, so I bought it in December instead. That's tax planning aka tax avoidance. Should HMRC come after me for the tax that I avoided?

There is no clear dividing line between that trivial avoidance (which I think most people agree is acceptable) and the extremely aggressive and complex avoidance techniques used by large companies (which many find unacceptable), there's just a spectrum of how complex the technique is.

Avoidance is reducing your tax bill by playing the rules. Evasion is reducing your tax bill by breaking the rules.

Are you really suggesting that you want HMRC to make up the rules as it goes along on what is and isn't "acceptable" avoidance? That way lies madness.

I think you'll find that HMRC don't actually waste much time with the small scale tax evasion of people abusing the C2W scheme, but it is still tax evasion.

I really couldn't give a crap if people buy sat nav systems or whatever through C2W

That's very generous. Do you mind if I underdeclare my earnings on my tax return by a few hundred quid? What about a few thousand?

Headhuunter

pdw wrote:

Corporations and wealthy individuals evade paying billions of pounds in tax every year through perfectly legal tax loopholes.

No they don't. They avoid paying tax though legal loopholes. It's a critical distinction.

For example, suppose I was planning to buy a nice shiny GPS in January of this year. But I spotted that VAT was going to rise in January, so I bought it in December instead. That's tax planning aka tax avoidance. Should HMRC come after me for the tax that I avoided?

There is no clear dividing line between that trivial avoidance (which I think most people agree is acceptable) and the extremely aggressive and complex avoidance techniques used by large companies (which many find unacceptable), there's just a spectrum of how complex the technique is.

Avoidance is reducing your tax bill by playing the rules. Evasion is reducing your tax bill by breaking the rules.

Are you really suggesting that you want HMRC to make up the rules as it goes along on what is and isn't "acceptable" avoidance? That way lies madness.

I think you'll find that HMRC don't actually waste much time with the small scale tax evasion of people abusing the C2W scheme.

I really couldn't give a crap if people buy sat nav systems or whatever through C2W

That's very generous. Do you mind if I underdeclare my earnings on my tax return by a few hundred quid? What about a few thousand?

But if HMRC hadn't made it illegal to buy sat navs through C2W, then that would simply be a matter of "avoidance" rather than "evasion" too! What I'm saying is that they shouldn't waste their time with silly distinctions on a product to product basis within the C2W scheme and fiddling around with "post hire" bicycle valuations and actually focus on tax "avoidance" that would actually bring decent revenue to the public coffers! How many man hours and how much did they spend coming up with pointless definitions affecting the C2W scheme when they could be doing something which actually makes a difference!

Your second point is completely superfluous, of course I mind if you don't declare earnings, that's blatantly illegal and is tax evasion!

wgwarburton

pdw wrote:

...Are you really suggesting that you want HMRC to make up the rules as it goes along on what is and isn't "acceptable" avoidance? That way lies madness....

..or IR35...?

Cheers,
W.

pdw

Headhuunter wrote:

But if HMRC hadn't made it illegal to buy sat navs through C2W, then that would simply be a matter of "avoidance" rather than "evasion" too! What I'm saying is that they shouldn't waste their time with silly distinctions on a product to product basis within the C2W scheme and fiddling around with "post hire" bicycle valuations and actually focus on tax "avoidance" that would actually bring decent revenue to the public coffers!

They didn't "make it illegal to buy sat navs through C2W". Your employer can't just give or rent you stuff without you paying tax on the benefit. A specific tax break was introduced that made it possible to rent bicycles and cycling safety equipment from your employer and for it to not be considered a taxable benefit. A sat nav is neither a bicycle nor an item of cycling safety equipment, so like a playstation, a car or a house, it doesn't qualify for the tax break and you have to pay for it out of your taxed earnings.

How many man hours and how much did they spend coming up with pointless definitions affecting the C2W scheme when they could be doing something which actually makes a difference!

The definitions aren't pointless - they're essential (and if you go and read the docs, they're actually very clear and simple). If you introduce a tax break, you have to prescribe what it can and can't be applied to. You might argue that the C2W scheme is pointless: it creates a lot of admin on all sides - HMRC have to ensure that the rules are applied correctly, and everyone else has to figure out how to maximise the tax savings that can be made, and in the end, it probably doesn't actually encourage that many people to cycle who wouldn't otherwise.

You can make a very good argument that we'd all be better off if we did away with all tax breaks, simplified the taxation system and used the money saved to reduce taxes overall.

Your second point is completely superfluous, of course I mind if you don't declare earnings, that's blatantly illegal and is tax evasion!

It's exactly the same situation! Either way, I'm not paying tax on part of my earnings when I should be.

tmsbird

Had a chat today with c2w and they set the repayments to around £70 a month and can't understand why payroll decided to take more for 2 months. So after a chat with payroll they are looking into it! So I may well get some money back. At least I'll feel like its more of a bargain if I get some money back. Thanks for all the replies everybody its been very helpful