Cycle to work and VAT

sketchley · July 2011

For those of you who have not seen this

http://www.bikeradar.com/commuting/news ... ikes-31162

and this

http://www.hmrc.gov.uk/briefs/vat/brief2811.htm

I've checked this with company accountant and the effect of this is as of January 1st VAT will need to be added to your monthly hirer charge (before tax). This affects current schemes as well as new schemes. So your monthly amount will go up by 20%. I have no idea how this affect places that could not claim the VAT back in the first place as it's the hire charge that is subject to VAT and nothing to do with if the VAT can be reclaimed on the bike purchase.

dhope · July 2011

So a £1000 bike would now cost

£1200 before tax - assume £720 after (40% saving?)
plus £250 at end of year (after tax)

i.e. £30 saving?

Sounds like it's worth just getting a bike in the sale on 0% finance.

king_jeffers · July 2011

Only a matter of time I guess. The scheme really appealed to me not only for the saving but also the ability to spread the cost. I think because of the latter it will still continue.

Thankfully I'm out in November, my next bike I'll purchase direct and attempt to negotiate a discount. :P

iPete · July 2011

Last I checked Evans do 0% finance, seems even more appealing now!

moonio · July 2011

Yes the cycle to work scheme was a complete rip-off imo
Am staying clear of any government/hr related schemes in the future..

rolf_f · July 2011

moonio wrote:

Yes the cycle to work scheme was a complete rip-off imo
Am staying clear of any government/hr related schemes in the future..

No it isn't! I never got the VAT discount anyway but it still worked out as a great deal. If you buy a cheaper bike its actually better at the moment than it was last year.

dhope wrote:

So a £1000 bike would now cost

£1200 before tax - assume £720 after (40% saving?)
plus £250 at end of year (after tax)

i.e. £30 saving?

Sounds like it's worth just getting a bike in the sale on 0% finance.

No - the thousand pound bike still costs a thousand pounds. And of course, you only pay the £250 if you don't understand C2W. Fact is that tax and NI off the price of the bike plus £50 or so at the end of the year still represents a good saving. You probably won't match that with discounts anyway and, even if you do come close, you won't have anywhere near the same amount of choice.

se-po · July 2011

Sketchley wrote:

I've checked this with company accountant and the effect of this is as of January 1st VAT will need to be added to your monthly hirer charge (before tax). This affects current schemes as well as new schemes. So your monthly amount will go up by 20%. I have no idea how this affect places that could not claim the VAT back in the first place as it's the hire charge that is subject to VAT and nothing to do with if the VAT can be reclaimed on the bike purchase.

It's weird, because next year I will have to pay 4 more charges (I've purchased the bike in May). So I'll pay VAT on the 25% of the amount.
But is it legit? Can I decide to resign from the scheme? (keeping the bike,of course).
Have to ask the contract I signed to the HR.

sketchley · July 2011

Still worth doing.

Assuming you hire the bike over 5 years paying 12 monthly payments via salary sacrifice followed by 48 monthly payments of zero. That way there is no FMV to pay.

£1000 Bike top rate tax before this change was £40.28 for 12 months a saving of £516.64 after this change it's now £48.37 aa saving of £419.56 which is still near half the bike.

For £1000 bike on lower rate tax. First 12 was £47.22 a saving of £433.36 now £56.65 a saving of £320.20.

So still worth doing. That is providing the scheme provider or your work don't run the scheme at a profit and try to bank the entire 25% fmv after year 1. Only issue with the above is if you leave the company before the end of the 5 years you will then need to pay FMV or tax on it at that point. I think most of the problems with this come from the way some companies and schemes administer cycle to work. It really isn't that hard to do it yourself. For example my company will simply buy any bike you want direct from retailer with company credit card. We fill out our own forms cribbed from one the many online websites and payroll take care of the salary scarifice which is easy for them because it part of what they do! Only complication is as of January payroll need to tkae slightly more money and the accounts team need to put the VAT on the VAT return.

Headhuunter · July 2011

Sketchley wrote:

Still worth doing.

Assuming you hire the bike over 5 years paying 12 monthly payments via salary sacrifice followed by 48 monthly payments of zero. That way there is no FMV to pay.

£1000 Bike top rate tax before this change was £40.28 for 12 months a saving of £516.64 after this change it's now £48.37 aa saving of £419.56 which is still near half the bike.

For £1000 bike on lower rate tax. First 12 was £47.22 a saving of £433.36 now £56.65 a saving of £320.20.

So still worth doing. That is providing the scheme provider or your work don't run the scheme at a profit and try to bank the entire 25% fmv after year 1. Only issue with the above is if you leave the company before the end of the 5 years you will then need to pay FMV or tax on it at that point. I think most of the problems with this come from the way some companies and schemes administer cycle to work. It really isn't that hard to do it yourself. For example my company will simply buy any bike you want direct from retailer with company credit card. We fill out our own forms cribbed from one the many online websites and payroll take care of the salary scarifice which is easy for them because it part of what they do! Only complication is as of January payroll need to tkae slightly more money and the accounts team need to put the VAT on the VAT return.

Problem is that most standard schemes do not have the facility to extend the scheme to 5 years... Cycle Scheme for example giives you the option to extend another what? 2 years? From the initial 12 month hire period...

Cycle to work and VAT

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