c2w scheme to start charging VAT

[lejogger]

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

No problem at all. Happy to help - even though it means a bit of extra cost for you

 

[Norm]

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?

The bike is the employers and you are renting it until the you have bought it from them after the rental period has finished.

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

Hmm... £25 was certainly used by many companies but the requirement has always been for the bike to be sold at a fair market value. All that happened in August last year was that they issued guidance as to what they considered to be fair market value.

I'd also guessed that, because Dr Snuggles was just considering another bike, that it was fairly recent.

I would suggest that for the employer to accept full value over a year and not care who buys the bike at the end of that time is very different from only having recovered 75% value at that time. However who can tell what the final score would be.

I've shown that the employer has recovered at least 104% of the value of the bike plus anything that they have saved in corporation tax payments.

 

[lejogger]

Hmm... £25 was certainly used by many companies but the requirement has always been for the bike to be sold at a fair market value. All that happened in August last year was that they issued guidance as to what they considered to be fair market value.

I totally agree Norm, you are correct in what you say... but in reality, although we all know that £25 is a million miles away from a fair market value for a 12 month old £1k bike, if the final payment was made before August when the guidance was issued there would not have been a tax liability.

The £25 fee that Dr Snuggles paid did make the bike his property though... it's just that from a tax perspective it didn't satisfy the new regulations and the tax adjustment will be due. It doesn't stop it being his property though.



With regards to your 75% theory, you are definitely correct that this is the best scenario for all parties from a financial point of view. My only concern is that speaking from an accountant's perspective it would be quite tricky (well time-consuming and not straight forward) to reconcile all the savings from different pots against the initial outlay.

 

[Norm]

There has to be some advantage to being a beanie.

I agree it would be difficult to show that for each bike, but if you can show that the principle works and that the company does make something, even if it's only around 25% of the purchase price, then you should be good to go.

Although having a couple of directors / senior managers to promote the other benefits (such as getting employees to pay for a contract effectively requiring them to give 12 months notice) won't do any harm.

 

[The Jogger]

if I buy s £1k bike and pay 40% tax over 12 months, our company now takes the estimated value at the end of the scheme by altering our tax code, so will it still be worth me getting another bike. Also if you were to buy cycle clothing and equipment instead of a bike then surely the future value would be a lot lower than that of a bike.

 

[GrumpyGregry]

Like many others my employer never could claim the VAT back on anything so I never got the benefit of the VAT 'discount' element. Still a great scheme imo and I've had three bikes via it as a result. Probably be signing up again in the autumn to get a Brommie as my Strida is broke.

 

[lejogger]

if I buy s £1k bike and pay 40% tax over 12 months, our company now takes the estimated value at the end of the scheme by altering our tax code, so will it still be worth me getting another bike. Also if you were to buy cycle clothing and equipment instead of a bike then surely the future value would be a lot lower than that of a bike.

I think when you state that your employer adjusts your tax code, this is just a simplified way of saying that they 'give' you the cycle and then complete a P11d with the residual value. This will have the knock on affect of altering your tax code. So yes. I would say you'll still make worthwhile savings on the scheme if implemented in this manner.

By saying you pay 40% tax do you mean that you are a higher rate tax payer and therefore you would be paying 40% of the residual value in the following year rather than 20% as a standard rate taxpayer? This is a larger amount obviously, but you will have made much greater savings on your hire payments as a 40% tax payer.

 

[The Jogger]

I think when you state that your employer adjusts your tax code, this is just a simplified way of saying that they 'give' you the cycle and then complete a P11d with the residual value. This will have the knock on affect of altering your tax code. So yes. I would say you'll still make worthwhile savings on the scheme if implemented in this manner.

By saying you pay 40% tax do you mean that you are a higher rate tax payer and therefore you would be paying 40% of the residual value in the following year rather than 20% as a standard rate taxpayer? This is a larger amount obviously, but you will have made much greater savings on your hire payments as a 40% tax payer.

Yes, I'm in the 40% tax bracket. Was wondering how much cash I spd actually be paying back.

 

[lejogger]

Yes, I'm in the 40% tax bracket. Was wondering how much cash I spd actually be paying back.

If the bike was £1k and the hire agreement was over 12 months, the residual value at time of sale to you from your employer is £250 according to the HMRC guidance. So you would be liable to pay tax of £100 (£250 x 40%) via deduction from your tax code if you were given the bike. If you paid an amount for the bike then take that off the £250 and work out 40% of that.

 

[400bhp]

If you paid an amount for the bike then take that off the £250 and work out 40% of that.

What does that mean?

 

[lejogger]

What does that mean?

After your hire agreement ended, you might have been given the bike at no cost (incurring a tax liability on the full £250) or you may have paid something to your employer. If this was £50 for example then your tax liability would only be on £200

 

[The Jogger]

If the bike was £1k and the hire agreement was over 12 months, the residual value at time of sale to you from your employer is £250 according to the HMRC guidance. So you would be liable to pay tax of £100 (£250 x 40%) via deduction from your tax code if you were given the bike. If you paid an amount for the bike then take that off the £250 and work out 40% of that.

Thanks for that jogger, so I make that £700 in total for a £1k bike.

 

[lejogger]

Thanks for that jogger, so I make that £700 in total for a £1k bike.

There are many variables, but if you're saving 40% tax and 12% NI on the cost of the hire agreement, you pay £480 in total to hire the £1k bike for 12 months.

If you're given the bike after 12 months and pay the £100 tax on the residual value then in total then bike has cost you £580.

 

[400bhp]

After your hire agreement ended, you might have been given the bike at no cost (incurring a tax liability on the full £250) or you may have paid something to your employer. If this was £50 for example then your tax liability would only be on £200

Sorry, I don't follow? Are you saying that you are only liable to pay tax on the difference between HMRC's table and the amoung you pay for the bicycle at the end?

The previous C2W scheme I paid £70 IIRC for the end payment.

This time I am due to pay £250 (25% of the £1000 voucher) after 1 year, or £70 (7%) after 4 years (I have a choice).

AFAIK the end payment is not tax deductible using the non b.i.k method..

 

[lejogger]

Sorry, I don't follow? Are you saying that you are only liable to pay tax on the difference between HMRC's table and the amoung you pay for the bicycle at the end?

The previous C2W scheme I paid £70 IIRC for the end payment.

This time I am due to pay £250 (25% of the £1000 voucher) after 1 year, or £70 (7%) after 4 years (I have a choice).

AFAIK the end payment is not tax deductible using the non b.i.k method..

It all depends on your scheme. If you pay £250 after 1 year or £70 after 4 years then you won't have to pay any tax at all. But obviously you pay more - or wait a long time.

If your scheme allows, then you can pay a lesser amount than the HMRC advise, but this leaves you open to the tax liability.

Fortunately my scheme is a Halfords one which allows my employer to choose the final payment. I have discussed it with our director of finance and he is happy to gift the bikes to employees at the end of the scheme and process the P11d to deal with the tax charges generated.

It all depends on who owns the bikes during the hire period and how much they're willing to sell them to you for.