Cycle to work scheme, vat and frs

[Archangel]

Help!

I'm setting up a cycle to work scheme for my employees (2 of whom have indicated they will join).

I'm going to self administer it as this will give us the best buying power.

The problem is with vat.

1) the total cost of the bikes will be less than 2k, so no vat will be reclaimed on frs

2) the employees will salary sacrifice the cost of the bikes over 12 months, then nominally rent them for 3 years and then keep them

3) I believe I have to add output vat on the salary sacrifice due to a European Union ruling in 2012 and pay it to hmrc with my usual vat

4) this means the company is paying vat twice does it not, once on the purchase of the bike. then again on the salary sacrifice

Anyone clear this up, or just confirm my logic? Thanks

[Scruff]

Just buy the bikes and expense them. Tell your two employees that they can pay them back to you, gross of VAT, out of their gross pay as a salary sacrifice. They have a zero tax cost and net advantage, YourCo has a Tax zero CorpTax advantage plus the FRS margin and everything's kosher. K.I.S.S.

[Jessica@WhiteFieldTax]

Your logic seems right.

You could look at it that you are paying vat twice on the bikes, but that's a bit simplistic.

You cannot recover vat on the purchase as you are in the FRS and getting benefit of that. You could come out of FRS and reclaim the VAT on the bike purchases but, presumably, you loose elsewhere?

The vat charge on the salary sacrifice is a separate charge.

For company directors / majority shareholders I think it's easier to skip salary sacrifice, buy the bikes as company assets, pay the 20% BIK on assets made available to an employee (which can be apportioned down for business use) then after a few years write them off and gift them to staff at MV which will be negligible on a three year old push bike. Avoids vat on salary sacrifice, and the cost of a BIK for tax/Ers NI. Capital Allowances for CT, probably 100% AIA.

[mudskipper]

Your logic seems right.

You could look at it that you are paying vat twice on the bikes, but that's a bit simplistic.

You cannot recover vat on the purchase as you are in the FRS and getting benefit of that. You could come out of FRS and reclaim the VAT on the bike purchases but, presumably, you loose elsewhere?

The vat charge on the salary sacrifice is a separate charge.

For company directors / majority shareholders I think it's easier to skip salary sacrifice, buy the bikes as company assets, pay the 20% BIK on assets made available to an employee (which can be apportioned down for business use) then after a few years write them off and gift them to staff at MV which will be negligible on a three year old push bike. Avoids vat on salary sacrifice, and the cost of a BIK for tax/Ers NI. Capital Allowances for CT, probably 100% AIA.

My understanding is that this isn't applicable as long as the bike is primarily used for commuting.

NW used to have a leaflet on their website which explains how it works, but I can't find it now...

[Archangel]

Just buy the bikes and expense them. Tell your two employees that they can pay them back to you, gross of VAT, out of their gross pay as a salary sacrifice. They have a zero tax cost and net advantage, YourCo has a Tax zero CorpTax advantage plus the FRS margin and everything's kosher. K.I.S.S.

This ignores my main problem/question regarding the fact that I have to charge output vat on the salary sacrifice.

[Archangel]

Your logic seems right.

You could look at it that you are paying vat twice on the bikes, but that's a bit simplistic.

You cannot recover vat on the purchase as you are in the FRS and getting benefit of that. You could come out of FRS and reclaim the VAT on the bike purchases but, presumably, you loose elsewhere?

The vat charge on the salary sacrifice is a separate charge.

For company directors / majority shareholders I think it's easier to skip salary sacrifice, buy the bikes as company assets, pay the 20% BIK on assets made available to an employee (which can be apportioned down for business use) then after a few years write them off and gift them to staff at MV which will be negligible on a three year old push bike. Avoids vat on salary sacrifice, and the cost of a BIK for tax/Ers NI. Capital Allowances for CT, probably 100% AIA.

Thanks for the reply
The company does rather well out of frs so not worth coming out.
The employees are not directors or shareholders
Would I pay 20% of salary sacrifice to hmrc, or my frs %

[v8gaz]

I'm surprised you have emplyees and yet remain under the upper threshold for FRS.

[Jessica@WhiteFieldTax]

My understanding is that this isn't applicable as long as the bike is primarily used for commuting.

NW used to have a leaflet on their website which explains how it works, but I can't find it now...

As I said the BIK can be apportioned for business use, so mostly business use, mostly apportioned out.

Not sure commuting would count as business use, subject to 24 month rule allowability.

I may have missed something, but I'm not aware of any specific exemption for bikes and ordinary commuting.

As is often the way it depends on what's being bought, a £600 bike will attract less attention than a £3,000 one if the taxman calls.

[Jessica@WhiteFieldTax]

Thanks for the reply
The company does rather well out of frs so not worth coming out.
The employees are not directors or shareholders
Would I pay 20% of salary sacrifice to hmrc, or my frs %

FRS%. But the salary sacrifice amount counts towards FRS turnover restriction.

[mudskipper]

As I said the BIK can be apportioned for business use, so mostly business use, mostly apportioned out.

Not sure commuting would count as business use, subject to 24 month rule allowability.

I may have missed something, but I'm not aware of any specific exemption for bikes and ordinary commuting.

As is often the way it depends on what's being bought, a £600 bike will attract less attention than a £3,000 one if the taxman calls.

I think it is exempt from BIK, and not subject to 'business use', as long as it is used to get to work (i.e. not restricted by 24 month rule)

https://www.gov.uk/expenses-and-bene...-for-employees

"As an employer, lending or hiring bikes to employees doesn’t count as an expense or benefit - as long as they’re available to all employees and mainly used for getting to work."

So yourCo buys the bike and lends it to the employee, who uses it to cycle to and from work as well as for personal use. No BIK.