c2w scheme to start charging VAT

[Norm]

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?

Correct. If you pay £100 and the HMRC valuation is £250 (and assuming you are not claiming that the bike is only worth £100), then the taxable benefit is £150 and the tax that you pay would be around £30, or £60 if you are a higher rate tax payer.

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

Confusion reigns.

If you are making a £250 payment, 400bhp, then that is not tax deductible but there is no tax liability. Unfortunately, I think that this is what most schemes still require.

 

[lejogger]

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

You're completely right. If you pay for the bike the amount the HMRC state in their table then you pay no tax... but bear in mind you've already paid 12 monthly hire payments too. The BIK method works out a lot cheaper if it's an option.

 

[400bhp]

If you are making a £250 payment, 400bhp, then that is not tax deductible but there is no tax liability.

That's the same thing!

 

[The Jogger]

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.

Even better, thanks

 

[400bhp]

In the "olden" days, ie the time before the HMRC table, what did employers (who used the b.i.k route ) used to put on your P11D for the C2W tax liability? Did they make up a residual value for the bike?

 

[400bhp]

You're completely right. If you pay for the bike the amount the HMRC state in their table then you pay no tax... but bear in mind you've already paid 12 monthly hire payments too. The BIK method works out a lot cheaper if it's an option.

I need to start to put some persuasive pressure on my current employer to use this route.

 

[2Loose]

In other words,
My final payment would be 250quid according to HMRC, but my employer will honour the original 5% 'rumour' (ie.50quid final payment) but that leaves me liable for a 'Benefit in Kind' tax payment of 20% of the remaining 200quid, of which my tax code will be changed to take it over the following year.

The alternative would have been to pay the 250quid hmrc valuation.

I think the scheme is great as it has saved me over 250 quid when I add things up (probably badly)

 

[lejogger]

In the "olden" days, ie the time before the HMRC table, what did employers (who used the b.i.k route ) used to put on your P11D for the C2W tax liability? Did they make up a residual value for the bike?

The BIK option for C2W only emerged as a result of the HMRC table. Most used a final purchase fee of 5-10% but because they were all different the HMRC stepped in to standardise things. There was no tax due because there was no clear guidance as to what a 'fair market value' was.

 

[Norm]

In the "olden" days, ie the time before the HMRC table, what did employers (who used the b.i.k route ) used to put on your P11D for the C2W tax liability? Did they make up a residual value for the bike?

I understand that most "valued" the bike at around 5% of the initial price, so it wasn't such an issue.

By coincidence, 5% is also 20% of 25%, so anyone using the method which lejogger suggests still pays only 5%.

 

[400bhp]

Thanks

Thought so.

 

[lejogger]

In other words,
My final payment would be 250quid according to HMRC,

If the bike cost £1k and was 12 months old

but my employer will honour the original 5% 'rumour' (ie.50quid final payment) but that leaves me liable for a 'Benefit in Kind' tax payment of 20% of the remaining 200quid, of which my tax code will be changed to take it over the following year.

Yes

The alternative would have been to pay the 250quid hmrc valuation.

and yes

I think the scheme is great as it has saved me over 250 quid when I add things up (probably badly)

Despite the changes, yes - for most - it is still a very good scheme

 

[2Loose]

Sorry Lejogger, should have put the cost of the bike in so it made more sense.