Evans Cycles continues to offer fantastic Ride2Work packages which help employees ride to work for less. Commuting to work by bike is not only a healthy option; it can save you money on travel costs and is great fun!
Recent new HMRC legislation confirmed that the treatment of VAT in relation to Tax free bike schemes is changing. This will come into effect from January 2012. With Ride2Work you can still make a brilliant saving of up to 40% on your new bike and accessories. We have put together this useful FAQ page for employers and employees about Ride2Work and VAT.
Q. What has caused this change in VAT legislation?
A. As a result of a European Court of Justice ruling HMRC have had to amend the rules regarding how VAT is handled through salary sacrifice. Now VAT must be accounted for on the monthly sacrifice amounts that employees pay because these are viewed as the supply of a service; in this case the hire of a bike, and therefore tax is due.
Q. As an employer, can I still reclaim the VAT when I purchase the bikes from Evans cycles through Ride2Work?
Q. I am an employer with a scheme already running what do I have to do?
A. Right now you don’t have to do anything as the change does not take effect until 1st January 2012. If you have passed on the VAT saving to your employees, (which means the Gross Salary sacrifice amount is the Ride2Work certificate value less VAT,) you will need to adjust the salary sacrifice from 1st January 2012 to add VAT @ 20%. This can be done by multiplying the monthly amount by 20%, for example £50 x 1.2 = £60. This only needs to be done for the remaining payments outstanding from 1st January, for example, if the 12 month salary sacrifice started in June then you only need to adjust the 6 payments due from 1st January until June 2012.
Q. Do I have to charge the VAT to my employees or could I cover it myself?
A. Yes, you could pay the monthly VAT amount if you wished.
Q. Is VAT still chargeable on the fair market valuation?
A. Yes, but remember the valuation amount already includes VAT.
Q. I’m just about to launch my scheme and I was going to pass on the VAT saving so what should I do?
A. We would advise that you do not pass on VAT saving to employees, therefore the Gross salary sacrifice amount is the full Ride2Work certificate value and you simply deduct VAT from the monthly amount rather than having to add it. You will need to account for the VAT as an output tax.
Including VAT means the tax and NI savings are increased and the reduction in savings is actually only 9% for higher rate tax payers and 11% for base rate tax payers. If you wished you could do the salary sacrifice for a longer period up to 18 months to help offset the increased cost to employees by reducing the amount paid each month.
Q. I’ve just got my new bike, what does it mean to me?
A. If your employer has passed on the VAT saving to you then it is likely that from 1st January they will increase your Gross monthly deduction amount to include VAT. The increase is only from 1st January until the end of your salary sacrifice. For example, if you are currently paying £50 a month and your salary sacrifice runs until April 2012 then from 1st January your monthly payments go up to £60 (adding 20% to £50) for 4 months which means you have paid an extra £40.
Q. I was just about to do the scheme is it still worth it?
A. Yes! You still save Tax and National Insurance which means savings are in the region of 30% – 40% and you still get to repay over 12 months. Don’t forget with Evans Cycles you can purchase sale items; use Deal of the Week and our price promise to get even better savings.
Q. Have savings gone down by 20%?
A. No! Not getting the VAT saving simply means the value of your Gross salary sacrifice, that’s the amount by which you reduce your salary, has actually gone up and therefore you save more Tax and National Insurance. Savings can still be in the region of 30% – 40% depending on your income.
If you would like to leave a comment below we will get back to you with the answer. Alternatively click here to find out more information and view Ride2Work’s fantastic packages or call the Ride2Work support team on 01293 572325 and we will be happy to help.