Cycle to Work Scheme – Act before 31.12.11 to maximise tax savings
August 18th 2011
Act before 31.12.2011 to maximise tax savings from the Cycle to Work Scheme
Under current arrangements, employers who participate in the Cycle to Work Scheme can use the cost of the bicycle and accessories NET of VAT to be deducted from the employee under a salary sacrifice agreement. For all cycles purchased through the scheme after 1st January 2012, the employer will have to use the amount including VAT.
Example of savings up to 31 December 2011
Cost of bicycle: £500
Cost of accessories £100
Total cost £600
Deduct VAT reclaimable by the business: (£100)
Amount to be deducted from employee: £500
This is deducted from the employee over either 12 or 18 months before tax and NIC is calculated, therefore an employee paying basic rate tax would save 20% Tax and 12% National Insurance, a total of £160.00. The cost to employee for the original £600 value is therefore £340.00.
For employees paying the 40% or 50% tax rate, the savings will be even higher.
Example of savings after 1 January 2012
Cost of bicycle: £500
Cost of accessories £100
Total cost £600
This is deducted from the employee over either 12 or 18 months before tax and NIC is calculated, therefore an employee paying basic rate tax would save 20% Tax and 12% National Insurance, a total of £192.00. The cost to employee for the original £600 value is therefore £408.00.
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Please note:
1) The employer is the owner of the bicycle until the end of the salary sacrifice term, at which point the employee can choose to pay a small sum to use the cycle for an extended period, and can then purchase it for an amount according to a sliding scale set by HMRC.
2) Some employers, such as charities and some public sector employers may not be able to reclaim the VAT.
Please get in touch with us if you would like any further information regarding the scheme.
Remember that Online Payrolls do not charge for setting up the salary sacrifice deductions on the payroll or for extra reporting requirements for our clients.
