c2w scheme to start charging VAT

[lejogger]

I don't believe they have been doing that.

Their position is that the savings now are so low that it isn't worth their time administering such a scheme

Savings for them - 13.8% reduced NI contributions

Savings for you - 32%-42% minus whatever tax you'd pay on the residual value.

I think it's worthwhile. I'm sure you probably do too. It's a shame they don't.

 

[Norm]

Pretty silly shot, really, Adrian, given the number of times (as lejogger will, I'm sure, attest) that I've made exactly that comment to others. You'll have to work harder than that to catch me out. I didn't say that the price, or even the guarantee of a sale, would be pre-agreed even though I was typing that on the phone whilst sitting on the can and thus not giving the full intricate details of the scheme.

Have yourself a

 

[Norm]

If that was agreed that in advance, yes. I don't see how that relates to what I posted though.

 

[Norm]

When I said you'll have to work harder to catch me out, Adrian, it wasn't a challenge.

 

[dr snuggles]

Seems to me there are a so many different ways of running this scheme! I handed in the quote for £1000, he bought the bike VAT free, I payed back over 12 months (around £580 after tax and NI saving) and he required a one off payment of £25 to hand over ownership. Isn't it just as simple as this? This thread has got me confused I thought everywhere ran the scheme this way?
I am actually out tomorrow to look for a new bike through the scheme so I assume it all stays the same for me but looks like the last time it will be used with the Vat changes. My employer will definitely scrap the scheme if the admin becomes an issue.

 

[Norm]

They will sell the bike at the end of 12 months. It doesn't matter to the employer who the bike is sold to, although there will be the expectation that it will go to the employee, they should be able to get 25% of the purchase price for a 12 month old bike.

However, even if they scrap the bike, the employer has recovered 75% of the value through rental payments, around 13% through e'ers NI savings and 16.7% through VAT which they have reclaimed, so they are already up on the deal. They will also recover a fair amount of the cost (depending on individual circumstances) through reductions in corporation tax.

 

[lejogger]

Seems to me there are a so many different ways of running this scheme! I handed in the quote for £1000, he bought the bike VAT free, I payed back over 12 months (around £580 after tax and NI saving) and he required a one off payment of £25 to hand over ownership. Isn't it just as simple as this? This thread has got me confused I thought everywhere ran the scheme this way?
I am actually out tomorrow to look for a new bike through the scheme so I assume it all stays the same for me but looks like the last time it will be used with the Vat changes. My employer will definitely scrap the scheme if the admin becomes an issue.

There have been 2 major changes by the HMRC over the past 12 months.

Firstly they have brought out a valuation table to regulate the residual value of the bike after the hire period has ended. Your employer accepted £25 however the new table would actually expect you to have paid £250. You would therefore now have to pay income tax on the additional £225 benefit that you received from your employer.

Secondly the HMRC have decided that the cycle scheme is a salary sacrifice that should be liable to a VAT charge. This means that where you previously made hire payments VAT free, you will now have the additional charge.


Now even with these changes it is still possile to save between 32 and 42% but it is less than was previously possible

 

[lejogger]

And it doesn't fall foul here?

I wouldnt have thought so... I expect that both my cycle to work bikes will be sold to me at the end of my hire agreements, but there is nothing in writing to guarantee this

 

[Norm]

... he required a one off payment of £25 to hand over ownership. Isn't it just as simple as this?

No, you have a liability for a benefit in kind of (if the bike was 12 months old) £225. Your employer is responsible for declaring that on the year end return but, whether they do or not, you are responsible to HMRC for making the payment.

And it doesn't fall foul here?

No, why should it? That expectation is in every scheme, isn't it?

 

[dr snuggles]

There have been 2 major changes by the HMRC over the past 12 months.

Firstly they have brought out a valuation table to regulate the residual value of the bike after the hire period has ended. Your employer accepted £25 however the new table would actually expect you to have paid £250. You would therefore now have to pay income tax on the additional £225 benefit that you received from your employer.

Secondly the HMRC have decided that the cycle scheme is a salary sacrifice that should be liable to a VAT charge. This means that where you previously made hire payments VAT free, you will now have the additional charge.


Now even with these changes it is still possile to save between 32 and 42% but it is less than was previously possible

So does the bike actually belong to me, in the eyes of the law? Or can the employer still choose a figure of their own?

 

[lejogger]

No, you have a liability for a benefit in kind of (if the bike was 12 months old) £225. Your employer is responsible for declaring that on the year end return but, whether they do or not, you are responsible to HMRC for making the payment.

Norm, obviously this is only the case if the scheme finished after August 2010. Before this time £25 was more than acceptable as a final payment

 

[lejogger]

So does the bike actually belong to me, in the eyes of the law? Or can the employer still choose a figure of their own?

Yes the bike is yours when your employer sells it to you. But if it was after last August you are liable to a tax charge on the difference between £25 and the HMRC residual value of £250.

 

[dr snuggles]

Yes the bike is yours when your employer sells it to you. But if it was after last August you are liable to a tax charge on the difference between £25 and the HMRC residual value of £250.

I have to admit, for somebody who thought they fully understood the workings of the scheme, I am dumfounded. As the term has only just ran its course then it looks like I am liable for this extra tax. Should I be declaring this?

 

[lejogger]

I have to admit, for somebody who thought they fully understood the workings of the scheme, I am dumfounded. As the term has only just ran its course then it looks like I am liable for this extra tax. Should I be declaring this?

It's not the end of the world... best bet is to ask your employer to complete a P11d form on your behalf declaring a benefit in kind of £225. Dependant on your tax group you'll only be liable for tax on this amount, not the full amount, and it will be deducted from your tax code so payable over 12 months.



I'd recommend this strategy over dealing with the potential fallout from a HMRC investigation

 

[dr snuggles]

It's not the end of the world... best bet is to ask your employer to complete a P11d form on your behalf declaring a benefit in kind of £225. Dependant on your tax group you'll only be liable for tax on this amount, not the full amount, and it will be deducted from your tax code so payable over 12 months.



I'd recommend this strategy over dealing with the potential fallout from a HMRC investigation

Then that is exactly what I will do. Thanks for the advice, very useful.