Thursday 8 May 2014

The Cycle to Work Scheme


Although it has been running for a number of years, the Cycle To Work scheme still confuses Employers and Employees alike.



What does the scheme do?
An attempt to encourage greener transport to and from work, the Cycle to Work Scheme was introduced by the government to encourage the use of a bicycle as a transportation.


How does it work?
The scheme works where the Employer purchases the bicycle and the employee gets the use of the bicycle by sacrificing salary to the equivalent value over an initial 12 months.
The maximum cost of the bike is £1000 on the scheme, and can be used for road or mountain bikes, and qualifying accessories – helmets, lights etc.
It is worth noting that if your employer is VAT registered, they can claim the VAT back on the purchase, and the repayments the employee makes are then for the net amount (so for a £600 bike, that would be £500 net - £41.67 a month).

What happens at the end of the 12 months of rental/salary sacrifice?
At the end of the initial 12 month rental, the scheme administrator usually provides the employee with a choice – to extend the rental period, for which there would be a peppercorn (or even a nil) rental amount, or otherwise the employee can buy the bike at the fixed market value rate that HM Revenue and Customs provides. This is a sliding scale – the longer you rent the bike, the  less the deemed “market value is”. The full table of rates can be seen here and runs from 25% for bikes over £500 purchased by the employee at 12 months through to a negligible value (i.e. nil) for a bike under £500 original cost and held for 5 years. As an example, a bike that cost £500 and was held for 3 years, would have an 8% value and would therefore cost the employee £40 to purchase outright at the end of the third year of the scheme.

How much can you save?
Despite HM Revenue and Customs increasing the rates of “market value” on the scheme, there are still significant savings to be made for the employee. Why not have a browse for some bikes online and then input the cost of the bike onto a calculator, for example: http://www.cyclescheme.co.uk/calculator
For a £600 bike, a basic rate tax payer would save £120 income tax and £72 employee National Insurance. That means the bike for the 12 months, would cost £408 – a saving of 32%.

This calculation does not consider the cost at the end of the 12 months, but the most expensive option would be to purchase at market value from the employer at this stage – which would cost 18% of the original costs £600 x 18% = £108. This would still mean a cost of the bike of £516, a saving of £84 or 14%. The saving would be greater if the hire period was longer as the market value was longer.

How do you start a scheme?
It’s pretty simple. If you are employed – ask your employer to sign up using one of the many scheme administrators, or ask your nearest bicycle shop – most now offer the scheme. The UK’s biggest scheme administrator is http://www.cyclescheme.co.uk/ and other popular scheme administrators include On Your Bike: http://www.bicyclebenefits.co.uk/employee_zone/welcome.php .

If you require further advice please contact Easterbrook Eaton on 01395 516658 or advice@easterbrooks.co.uk .

Please note this article has been produced for guidance only and you should speak to Easterbrook Eaton or a scheme administrator before proceeding with setting up a scheme.

Thursday 1 May 2014

May Newsletter

Welcome to the May 2014 Newsletter from Easterbrook Eaton Limited

April was a busy month for many, with long-awaited changes finally coming into effect on the 6th plus a few Budget surprises to take into account. The start of the 2014/15 financial year is a time for business owners to breathe the spring air and look to the future.

You can view our summary of the 2014 Budget, visit the tax information section of our website.

Changes to legislation for employers

A number of significant changes for employers have taken place, meaning that every business with employees must re-evaluate their practices to make sure they are conforming to legislation.

The new Employment Allowance

Last year Chancellor George Osborne announced plans to introduce a new Employment Allowance designed to reduce the national insurance liability for businesses and charities, and to encourage businesses to expand and take on new staff.

Since April 2014 every business, charity and Community Amateur Sports Club in the UK has been entitled to claim up to £2,000 off their employer national insurance contributions (NICs) bill.

Employers must confirm their eligibility through their regular payroll process, to ensure that up to £2,000 is deducted from their employers' Class 1 NIC liability over the course of the year's PAYE payments.

The new Employment Allowance is delivered through standard payroll software and the HM Revenue & Customs (HMRC) Real Time Information (RTI) system.

The Employment Allowance applies per employer and can only be claimed once, irrespective of how many PAYE schemes the employer chooses to operate. It is up to the individual employer to decide which PAYE scheme to claim it against.

Click here to visit the full newsletter on our website.