C2W, disagreeing with employers calculations

[Wankelschrauben]

My employer left a note on my desk which says:

£719.99 Gross cost of bike
+£50.40 Tax due @ 7%
+£180.00 residual value @ FMV of 25% after one year
£950.39 Total due
-£100.00 Deposit
£850.39 Total borrowing after interest

11 gross installments of £55.87 and one final gross installment of £235.82, estimated net installments of £33.19

I believe that he has applied the rules incorrectly, we are VAT registered and he will reclaim the VAT on the bike. I have been told that by borrowing less than £500 I will be subject to just 3% interest instead of 7% interest.

He records the deposit as a downpayment after taxation and therefore the FMV is calculated on the original cost of the bicycle.



I say the benefit is the borrowing as follows:

£719.99 Gross cost of bike
-£120.00 VAT
£599.99 Net cost of bike
-£100.00 Deposit
£499.99 Amount borrowed before tax
+£15.00 Tax due @ 3%
+£125.00 Residual value at FMV of 25% after one year
£639.99 Total borrowing after interest


11 gross installments of £42.92 and a final installment of £167.87, estimated net installements of £25.85

My employer has said that any difference here will be made up for by the tax savings, again I disagree with.

I have estimated savings of appx £272.12 and £204.80 respectively, a difference of approximately £67.32 which does not cover the £210.40 difference on the total installments.

I argue that the borrowing is the taxable benefit that the bicycle should be valued at.

Buying the bike outright will cost me £719.99
By his method, the bike will cost me £678.27 saving me 6%
By my method, the bike will cost me £535.19 saving me 26%

Who is right, or if neither is, what elemets of these arguments are correct?

 

[ttcycle]

By the scheme I had experience of, the savings to be made were 20% approximately based on rate of income tax I was paying.

I know the scheme has changed a fair amount since I took part; someone who runs the current scheme should be able to give more current advice. If the saving is just 6-7% then it's pointless overall.

If you know which company is running the scheme you may be able to use their online calculator to work which monthly payments are correct etc

 

[suecsi]

From the Cyclescheme website (which should be the same workings out, apart from deducting FMV and deposit), and assuming a standard rate tax salary, over one year:-


Your tax calculation:

Total cost of bike and accessories: £719.99
Net cost of bike and accessories, including finance and admin costs (if applicable): £599.99
Income tax saving over hire period: £120.00
NI saving over hire period: £72.00
Final cost of bike & accessories: £407.99
Total saving:** £312.00
Gross salary sacrifice, based on 12 month hire period (this should be the figure displayed on your hire agreement): £50.00
Net salary sacrifice, based on 12 month hire period: £34.00
Percentage saving over RRP: 43.3% **Please note :A Market Value payment may be payable upon cessation of the agreement or at the end of the lease period

 

[jugglingphil]

I've recently finished the scheme (YAY), and I'm a lower rate tax payer as I don't get paid enough ;-)

Borrowed £1000 (seemed silly not to), payslip mentions £70.92 per month (x12 = £851.04) as salary sacrifice.
Paid 5% to transfer ownership = £50.

So total paid £901.04 meaning I saved a huge!!! £98.96
Not sure what impact that has had on the tax / NI, hopefully something as otherwise it's not much of an incentive! Apart from the fact you don't need to save up or take out a loan.

If I was to buy another bike then I'd probably go second hand!

 

[exbfb]

The way I worked it out.

Take the sticker
Deduct vat
From the above, deduct NI and PAYE.
Divide the above by 12 and that's what you'll pay NET.

 

[Norm]

Who is right, or if neither is, what elemets of these arguments are correct?

Firstly, the rules are whatever your employer wants them to be. Each scheme is different. There is no "disagreeing" with the detailed calculations unless you post the scheme rules in full. (but see point 3)

Secondly, the employer may be able to reclaim the VAT but, bluntly, so what. There is no obligation for them to pass on those or any other savings that they have made.

Thirdly, they are charging interest on the loan? That's taking the pee and I think it may also make the scheme outside the cycle to work regulations.

Cutting through the BS for a moment, the Cycle to Work regs are to allow an employer to lend an employee a bike. The employer can set whatever rental payments they like (although there will be some tax implications if they don't recover the capital cost) so there is no point in arguing. If those are the scheme rules, suck them up and sign up (if you are a muppet!) or buy direct from your LBS and get a discount for a cash purchase.

There are several significant flaws in your calculations but they are not, IMO, worth pursuing as you seem to have such a fundamental misunderstanding of the purpose and mechanics of the scheme.

 

[Wankelschrauben]

In theory, assuming that the gross salary is more than £7,475 plus the total cost of the bike, the taxable savings will be on the installments at 20% tax and appx 12% NI.

I've noticed that every online calculator I've noticed is out of date using the old tax code of 647L and the old rate of NI at 11%.

 

[frank9755]

Firstly, the rules are whatever your employer wants them to be. Each scheme is different. There is no "disagreeing" with the detailed calculations unless you post the scheme rules in full. (but see point 3)

Secondly, the employer may be able to reclaim the VAT but, bluntly, so what. There is no obligation for them to pass on those or any other savings that they have made.

Thirdly, they are charging interest on the loan? That's taking the pee and I think it may also make the scheme outside the cycle to work regulations.

Cutting through the BS for a moment, the Cycle to Work regs are to allow an employer to lend an employee a bike. The employer can set whatever rental payments they like (although there will be some tax implications if they don't recover the capital cost) so there is no point in arguing. If those are the scheme rules, suck them up and sign up (if you are a muppet!) or buy direct from your LBS and get a discount for a cash purchase.

There are several significant flaws in your calculations but they are not, IMO, worth pursuing as you seem to have such a fundamental misunderstanding of the purpose and mechanics of the scheme.

That is a pretty good explanation in every aspect!

 

[MacB]

In theory, assuming that the gross salary is more than £7,475 plus the total cost of the bike, the taxable savings will be on the installments at 20% tax and appx 12% NI.

I've noticed that every online calculator I've noticed is out of date using the old tax code of 647L and the old rate of NI at 11%.

Sorry, Norm has it I'm afraid and, if you can rustle up the dosh, you'll do as well, or better, on a cash deal maybe on a previous year model.

 

[400bhp]

That is a pretty good explanation in every aspect!

+1

 

[Wankelschrauben]

So there is little to no point in the Cycle to Work Scheme then?

I might aswell buy my own bike and save myself a load of hassel.

 

[400bhp]

So there is little to no point in the Cycle to Work Scheme then?

I might aswell buy my own bike and save myself a load of hassel.

It depends on a number of things, not least your marginal rate of tax, the amount your bike will cost and the specifics of your employer scheme.

It works for me. A £1000 bike costs me either £781 or £601 if I buy after 12m/48m respectively.

Isn't there a spell checker on this site?

 

[MacB]

So there is little to no point in the Cycle to Work Scheme then?

I might aswell buy my own bike and save myself a load of hassel.

I think the error is in assuming that it's the same setup for everyone, it's not and your example of your company charging you interest highlights that, though I'd like to see their justifications.

 

[Norm]

... your example of your company charging you interest highlights that, though I'd like to see their justifications.

I'd like to see how the employers can charge interest (which makes it a loan) when the regulations make it very clear that the scheme must be to rent the bikes to the employee.

I made considerable savings when I got my CTW scheme bikes.

 

[APK]

We are looking to buy through Barclays C2W scheme, they charge a 5% "admin fee" !! but we will still save about 27% + pay for it over 12 months, so worth looking into.

Jugglingphil, the figure you quote for salary sacrifice is the gross figure, which will be about £50pm worse off you will be, or £600 over the year, so not bad to get a £1000 bike!