Well surely this can only spell the end of the Cycle to Work schemes? The scheme just gets less attractive every year.

Yes you still make the Tax and NI savings but you will now have to pay VAT on your monthly payments.

http://www.bikeradar.com/news/article/vat-to-be-charged-on-cycle-to-work-bikes-31162

Blue torch paper is lit and I’ll stand back……

I’m contemplating this at the moment so it does sound less attractive. At the moment I’m undecided as to whether or not getting a 2011 discounted bike with 0% credit card or 2012 with cycle scheme. You should be fine from now until then as your agreement would be in place already.

Predictably, this was announced on the same day that my workplace decided they might offer it next year.

you would pay VAT under the current scheme, well I do under mine I took out in April.
My purchase price of the bike includes VAT, I just pay monthly at source so before NI and Tax, saving about 50% (higher tac payer) then pay 12% of the value after a year (slightly higher for bikes over £500, 8% for bikes under), so still saving 40 odd percent off a list price.

when I buy the bike with a discount to start with it looks even better.

So can anybody work out what we now pay.

I think it was

If you pay £1000, basic tax payer (20%) = 1000-20% tax-10% National insurane + 7% of value at end = £770

If you pay £1000, higher rate payer (40%) = 1000-40% tax-10% National insurane + 7% of value at end = £570.

Is it now an additional 17.5%, so …. £905, 670 respectively??

Cyclescheme charge shops 10%, so its unlikely to be worth it if you are a basic rate taxpayer, unless the 12 months interest free is worth something to you, or you want to OWN the bike from day 1. Does that look right?

Does VAT just apply if you start your scheme after Jan 2012? Our scheme is open at the moment, but about to close.

Currently, an employee on basic rate tax can choose a £500 bike and ‘hire’ it for 12 months for £287.50 (£34.72 a month, minus £10.76 in income tax and NI savings on the total salary). After paying the £108 final value fee (£90 + 20% VAT), they’ll have spent a total of £395.50. This represents a saving of £104.50.

From 1 January, ‘hiring’ the same bike will cost £345.12 (£34.72 + 20% VAT a month – £41.66 – minus £12.90 in income tax and NI savings). After paying the £108 final value fee, they’ll have spent a total of £453.12. This represents a saving of £46.88 – less than half the current discount.

So for a base-rate taxpayer you’ll save less than 10%… a bit pointless, for all the faff

More nails in the coffin.

If the shops are giving cycle scheme ten percent, why not just ask the shop if you can have ten percent and cut out the middle man?

onzadog – couldn’t agree more.

Its strange to add VAT on monthly payments as you’ve already paid it with the original purchase haven’t you?

Not wanting to start an argument but it has been largely abused since it came in, unfair on the smaller percentage of people that regularily commute on bike. Had there been some sort of way of proving that you were using said bike then there would have been less people abusing it for their leisure pursuits and it would probably be still running as it started.

Its strange to add VAT on monthly payments as you’ve already paid it with the original purchase haven’t you?

You’re paying VAT on the monthly hire payments.

As mentioned above, some companies do not pass the VAT savings on to their employees – This doesn’t stop the scheme being very popular with them

when I buy the bike with a discount to start with it looks even better.

cyclescheme bikes aren’t available at discount prices (unless you get lucky) as the store pays 10% to the scheme for the sale

If the shops are giving cycle scheme ten percent, why not just ask the shop if you can have ten percent and cut out the middle man?

that’d work for the shop – however aren’t the payments over 12 months attractive for the employee?

maxray – Member
Not wanting to start an argument but it has been largely abused since it came in….

Not only abused, but abused and then widely gloated about on just about every bike forum going 🙄
How do you think the taxman got to hear of the scams, not by using a crack team of bike usage detectives but by being made aware of it by those who just couldn’t resist bragging……..

my work never offered us the vat off anyway, said it was too complicated to claim it back. If you add this plus the 20% ‘final payment’ that folks are bringing in, it’ll actually be more expensive to buy a bike through cyclesceme than in cash, if you’re a lower rate tax payer

Anyone confirm if buying a bike now will be OK, or any payments after january would be affected?

Not only abused, but abused and then widely gloated about on just about every bike forum going

Yup, a genuine pull to encourage people to use a bike as transport ruined. 😥

I seem to remember a similar initiative (quite a while back) to offer subsidised computers/IT training went the same way – good ideas are often ruined by greed 😥

Do you know if the VAT will be added to new purchases only or backdated to existing agreements?

The final value fee in example given ignores the official loophole where you extend the hire period for a nominal fee and the bike is worthless at the end of the period. And I’ve never heard of bikes on offer being included in scheme as the shop pay them a fee. My employer claims back the vat at source so I can see their argument that no vat is ever paid for the goods or the service. I have just applied for a voucher so will be enquiring as to whether my 2011 voucher will incur vat on payments made from Jan 2012.

Maybe they should just remove VAT on bikes up to £1200 say. Much simpler.

The scheme has clearly been a winner, how can you argue with getting moe people onto bikes, even if they are not cycling to work. Hopefully there will be benifits in health that will transend the cost of the scheme.

As for the VAT i hope its not added to my payments from 2012 but i fear it will be.

The scheme has clearly been a winner, how can you argue with getting moe people onto bikes

Agree with Steviewhyte here. Surely the net benefit to the economy of increased transactions for bikes, safety equipment, spares and repairs outweigh the benefit of the VAT. Don’t have the figures so working on gut feel.

Reading the HMRC bumph it looks to have been a European ruling brought on because of Astra Zeneca offering high street shop vouchers in lieu of salary. Offering HM Gov the benefit of doubt, if the ruling is being forced through, surely HMRC could close that particular loophole and exempt cycle to work? That is assuming that HM is not using the ruling as a back door to tax us even more…

cyclescheme bikes aren’t available at discount prices (unless you get lucky) as the store pays 10% to the scheme for the sale

They can be if the shop bought the bike at a discounted rate in the first place.

chugg, HMRC effectively negotiated a sanctioned loophole in allowing the hire period of the scheme to be extended at only nominal cost to the point that the bike became worthless, after pointing out that bikes werent being sold to the user at a fair market value at the end of the 12-18month hire period. My employer is with Cyclescheme and they appear to give me the option of paying a chunk at the end of 18 months, or paying a few quid to extend the period to (IIRC) 48 months and get the bike at the end of that for free. I’d be mad to take the former!

I assume HMRC went with the new extension loophole to support the scheme having been convinced by the firms running it that even though there is no direct tax take, there is a benefit to the wider economy (higher employment/less benefits/more taxes paid, positive financial impact of increased health etc) so who knows if they will come up with (or support) something that offers a similar financial incentive?

AZ have done vouchers for years (knew an employee 10yrs ago who took vouchers as part of salary) so it’s taken long enough to catch them, and the C2W Scheme has been collateral damage.

Going to my LBS to buy a new bike, specifically for riding to work on at the weekend. Looking at a £600 bike, and I know they can do me 0% finance for 12 months, so £50 a month.

Having waded through the rules and regulations of our C2W scheme, even though I know there is money in the pot, I really don’t know if I can be bothered, or even if it’s going to be worth my while to apply for the scheme.

Even if I don’t do the C2W, it’s still going to save me money in fuel, so I’ll still be better off.

The whole thing seems a bit of a mess.

I really don’t think its been “widely abused”. It seems like this checking MTB forums and the like, but this isn’t a representative sample of the people who took up the scheme is it?

Lots of non-cycling collageues took up the scheme and bought commuter bikes.

Its not attractive enough for me anymore. Seems such a pity when then government is happy to subsidise peoples car buying with scrappage schemes, 5k grants for buying electric cars, and tax free benefit of car parks at work, which all add up to far more money.

and tax free benefit of car parks at work

what tax free benefit?

The company buys the bike – the company claims the VAT back. If they dont pass this on to you then your being ripped off by your company.

Its not complicated. Any purchase invoice with VAT on is claimed back by the company. Simple.

If they charge you VAT then they will have to have sold you something. Your accountants are doing it wrong.

I hope they dont start charging VAT on payments as soon as it reaches 2012 for people that are currently in a scheme.

For those in the know, can they actually do that? I’ve signed an agreement for paying a set amount over a set time period for the hire of the bike … if they change the amount, are they then changing the contract without my permission?

( I understand the final payment section can change as the whole point is that youre not meant to know until the end of the hire period )

what tax free benefit?

If your employer gives you a bike worth 250 quid for free, you pay tax on that value since it forms part of your salary, its what the HRMC cleared up a while ago, or you buy it at market value.

Parking near where i work costs 8 pounds a day roughly equal to 1840 quid a year. If the employer provided this for free at their expense, it would not attract tax. its specifically excluded… http://www.hmrc.gov.uk/guidance/480.pdf

They could remove this, but of course you’d get this reaction
http://www.dailymail.co.uk/news/article-1305362/Drivers-facing-250-tax-park-work-despite-end-war-motorists-pledge.html

so it might seem sensible to give a similar tax break to people who want to cycle to work, maybe??

Parking near where i work costs 8 pounds a day roughly equal to 1840 quid a year. If the employer provided this for free at their expense, it would not attract tax

Presumably, if you work somewhere that has high parking charges or other living expenses, the salaries reflect this and you are therefore taxed on the benefit.

Presumably, if you work somewhere that has high parking charges or other living expenses, the salaries reflect this and you are therefore taxed on the benefit.

not convinced. Parking is that expensive here (Brighton) but wages aren’t high. I got a parking space recently (after 8 years at the company), and my tax code didn’t change