Cycle to Work Scheme experiences

[IanSmithCSE]

Good morning,

.......Cyclescheme is a ridiculous policy that largely fails to benefit the people who need it, but is massively successful for saving higher rate taxpayers (Dentists?) 40% on their newest £5k carbon bike........

Every so often there are news stories or articles in magazines about some tax scheme that has been misused, HMRC reclaims unpaid tax and the people using that scheme claim that these repayment demands are unfair, they can't afford them etc.

So far HMRC hasn't gone after C2W users in general, although around 2009/2010 they did look at Rolls Royce because of the size of their scheme amongst more general concerns about "fair market value" at the end of the scheme. This is how we got the fixed percentages tables, rather than "my expert said that this £900 bike is worth £20!".

There has always been a requirement to use a C2W scheme bike for Cycling To Work, originally the wording was something quite general but more recent guidelines https://assets.publishing.service.g...t_data/file/845725/cycle-to-work-guidance.pdf have a 50% usage condition.

If there was a desire and as this is a salary sacrifice scheme it should be a relatively easy exercise for HMRC to determine those expensive bikes and then do an audit, possibly concluding an ineligibility for the C2W scheme and the issuing a nice big bill.

I would certainly consider this possibility if I were to use C2W for an expensive bike, the COVID price rises me even be a trigger for such a policy. Five years ago I would have said that £1k was a lot for a mostly ride to work bike, even now Halfords have a lot of good bikes for under £1k.

Most non cyclists that I know still consider this £1k a lot for a bike, so whilst many here are resigned to seeing £2k/£3k bikes as fairly normal we are in the minority.

If C2W schemes start putting in large numbers of £3k-£5k claims expect HMRC to take a much bigger interest than they have in the past. Of course if HMRC do take an interest and action it won't be prompt!

Bye

Ian

 

[bruce1530]

Other thing to be aware of is that the retailer will pay a commission (I believe it's about 10%) to the cycle to work scheme. So less profit in it for them, which means you're basically paying "ticket price" for any bike - no chance of any discounts.

 

[JtB]

I used the scheme twice and on each occasion I received a £1000 voucher which I paid back over 18 months from my gross earnings (note: the bikes cost more than £1000 but I paid the difference to the bike shop). After 18 months the payments from my gross salary just stopped and that was it (no final payment). As a 40% tax payer I saved a bucket load of money and I also received an 18 month interest free loan. So my experience was very good.

 

[NorthernSky]

I have a question re the scheme.

If you opt for a 4 year duration do you continue to pay the monthly deduction after the original total cost has been paid back? in cyclescheme instance is the first 12 months.

For example a £3039 bike over 4 years is a pre-tax monthly cost of £253.25 after tax £146.89, times that by 12 months equals the costs of the bike, times that by 48 is a whopping great £12,156 that can't be right?

no, i think most schemes are paid over 12 months. you should never pay more than what the bike costs initially.

Other thing to be aware of is that the retailer will pay a commission (I believe it's about 10%) to the cycle to work scheme. So less profit in it for them, which means you're basically paying "ticket price" for any bike - no chance of any discounts.

i was lucky that my employer secured a 12% discount otherwise i would have been paying full RRP for the bike like you say.

 

[SkipdiverJohn]

Cyclescheme is a ridiculous policy that largely fails to benefit the people who need it, but is massively successful for saving higher rate taxpayers (Dentists?) 40% on their newest £5k carbon bike.

It should be replaced with vouchers for genuine cycle commuters to get a functional but basic bike for cheap. And with no tie-in to your employer.

There's a much simpler, non-bureaucratic solution. Simply make the first £1,000 of the price of any new bike zero-rated for VAT purposes. People buying ordinary everyday utility machines would pay no tax at all on the purchase, and the dentists would still have to pay VAT on 80% of the price of their £5k Pinarellos.
Given we are no longer answerable to all those EU arsewipes in Brussels we can zero rate VAT on anything we want including sensible products like home insulation. Removing the purchase tax element is the simplest and easiest way of encouraging the public to buy anything the government is keen to increase the uptake of.

 

[IanSmithCSE]

Good afternoon,

I like the idea but I am struggling with the details, currently

Shop buys bike from supplier,
Say a Trek distributor for £600 and supplier charges £120 VAT.
Shop sells bike at £999, this means that the shop's VAT account is £120 Input and £166 output so £46 to pass on to HMRC.

How does this work if there is no VAT on the bike sale to the end customer?
The shop has still paid the supplier the £120 VAT, but now there is no VAT on the sale so the shops VAT account is £120 Input and £0 output, so the shop is entitled to £120 from HMRC.

If you say that the bike supplier can't charge VAT then he has to swallow the VAT charged by his suppliers.

So you would have to say that if the product is sold at under £1,000 the input tax needs to be accounted for in a separate VAT input account that is effectively "non input tax". There is currently no support for this concept in any accounting package that I know of.

It is also going to be accounting hell, when the bike is sold for say £1,100, do you pro rata the £120 charged by the supplier, so there is £12 in the input tax and £108 in the non input tax and £100 in the output account and £1,100 in the "non output account"?

This is complicated even further as input tax is accounted for at purchase time and output at sales time, so when the bike comes in you would need to decide which input tax account to allocate it to based on expected selling price. If the actual selling price is different then the input tax accounts would need adjustment.

It no longer seems quite so simple.

Bye

Ian

 

[SkipdiverJohn]

You could zero rate the wholesale sale to the dealer, then no complication arises. a simple tax-free transaction all the way from the from factory gate to retail customer.
There is no logical reason to operate schemes like C2W that require such administation, other than if you deliberately want to create revenue for middlemen in the chain.
As I said, the simplest way to make an item more attractive for the end customer to buy is not to levy any form of purchase tax on it at any point in the distribution chain. Zero rate tax going in, zero rate tax coming out.

 

[Alex321]

Good afternoon,

I like the idea but I am struggling with the details, currently

Shop buys bike from supplier,
Say a Trek distributor for £600 and supplier charges £120 VAT.
Shop sells bike at £999, this means that the shop's VAT account is £120 Input and £166 output so £46 to pass on to HMRC.

How does this work if there is no VAT on the bike sale to the end customer?
The shop has still paid the supplier the £120 VAT, but now there is no VAT on the sale so the shops VAT account is £120 Input and £0 output, so the shop is entitled to £120 from HMRC.

If you say that the bike supplier can't charge VAT then he has to swallow the VAT charged by his suppliers.

So you would have to say that if the product is sold at under £1,000 the input tax needs to be accounted for in a separate VAT input account that is effectively "non input tax". There is currently no support for this concept in any accounting package that I know of.

It is also going to be accounting hell, when the bike is sold for say £1,100, do you pro rata the £120 charged by the supplier, so there is £12 in the input tax and £108 in the non input tax and £100 in the output account and £1,100 in the "non output account"?

This is complicated even further as input tax is accounted for at purchase time and output at sales time, so when the bike comes in you would need to decide which input tax account to allocate it to based on expected selling price. If the actual selling price is different then the input tax accounts would need adjustment.

It no longer seems quite so simple.

Bye

Ian

That doesn't seem simple, but there are other items which can have different rates of VAT to the end consumer, depending on how they are purchased, so how do those get dealt with?

One example of this is a storage battery for a home renewable power system. If bought at the same time as the main part of the system (Solar panels in our case), it is 5% VAT. If bought later, it is 20% VAT. If the supplier can deal with that difference, then surely it should be possible to also cater for something which varies between 0% and 20%.

 

[Alex321]

You could zero rate the wholesale sale to the dealer, then no complication arises. a simple tax-free transaction all the way from the from factory gate to retail customer.
There is no logical reason to operate schemes like C2W that require such administation, other than if you deliberately want to create revenue for middlemen in the chain.
As I said, the simplest way to make an item more attractive for the end customer to buy is not to levy any form of purchase tax on it at any point in the distribution chain. Zero rate tax going in, zero rate tax coming out.

That only works if the idea is to encourage all purchases of the item. In this case, the idea is to encourage specifically commuting by bike, so not only is it a scheme which goes through your employer, but in theory at least 50% of the use of the bike should be for commuting.

Yes, it is a lot more convoluted, but that is really down to the reasoning behind what they want to encourage. We, of course, would prefer they encourage cycling altogether.

 

[Fredo76]

I simply cannot imagine such a scheme, for whatever it's worth, existing in the USA, ever. Our government is not that imaginative. The ones with the imagination here are the grifters. Our 'Paycheck Protection Program' set up during the pandemic has been an endless source of news articles covering the indictments of the recipients who bought Lamborghinis and bragged on social media, or just kept their heads down while stealing millions, etc. There is or was a TV show here called American Greed. Just imagine the abundance of plot lines to choose from!