Cycle to Work scheme: Tax issues

Calahonda52

https://www.boards.ie/vbulletin/showthread.php?p=106542327#post106542327

Can someone have a look at post 26 and 27 here and give an opinion please
Thanks

namenotavailablE

If you are paying for the bike through your payslip and it qualifies for the 'cycle-to-work' scheme, you will save on PAYE, PRSI and USC. The maximum amount which can be deducted for PAYE / PRSI/ USC purposes is €1000. Therefore, if you buy a bike costing €1800, you'll save PAYE/PRSI/USC on €1000 and the remainder will just be deducted from your salary.

Your exact savings will depend on the rate of USC you pay- if your annual income is over €70044, you'd save 40% PAYE, 4% PRSI and 8% USC on the €1000. If your income is under €70044, you'd save 40% PAYE, 4% PRSI and 4.75% USC on the €1000.

Calahonda52

namenotavailabl wrote: »

If you are paying for the bike through your payslip and it qualifies for the 'cycle-to-work' scheme, you will save on PAYE, PRSI and USC. The maximum amount which can be deducted for PAYE / PRSI/ USC purposes is €1000. Therefore, if you buy a bike costing €1800, you'll save PAYE/PRSI/USC on €1000 and the remainder will just be deducted from your salary.

Your exact savings will depend on the rate of USC you pay- if your annual income is over €70044, you'd save 40% PAYE, 4% PRSI and 8% USC on the €1000. If your income is under €70044, you'd save 40% PAYE, 4% PRSI and 4.75% USC on the €1000.

Thanks, and using the higher rate %'s above what the BIK hit would be if the company was to buy the bike for me.
Say the bike is 2,400 and the employer pays the lot, what are the cash flows for me please?
Thanks

scheister

Calahonda52 wrote: »

Thanks, and using the higher rate %'s above what the BIK hit would be if the company was to buy the bike for me.
Say the bike is 2,400 and the employer pays the lot, what are the cash flows for me please?
Thanks

first 1000 falls under the scheme so no BIK and Tax saving of €520 so cost is €480

The other €1,400 is treated as salary so taxed at 52% €728 in tax

Calahonda52

scheister wrote: »

first 1000 falls under the scheme so no BIK and Tax saving of €520 so cost is €480

The other €1,400 is treated as salary so taxed at 52% €728 in tax

Thanks,

Calahonda52

So back looking at this.

From the employers perspective, is the 1,000 fully allowed as a tax deduction in its P&L
What about any balance over the 1,000, as my example above of 2,400

https://www.revenue.ie/en/jobs-and-pensions/taxation-of-employer-benefits/cycle-to-work-scheme.aspx

thegolfer

Treat as allowable.

First element is under salary sacrifice, effectively wages, and a trade deduction.

Second element just wages, a trade deduction.

GrumpyMe

FROM THE OTHER THREAD:

homer911 wrote: »

...

Optiion #2 - the cost of the bike must always be reimbursed by the employee. ...

This conflicts with the https://www.revenue.ie/en/jobs-and-pensions/taxation-of-employer-benefits/cycle-to-work-scheme.aspx

"Your employer may buy the bicycle and not require you to pay for it. In this case, you will be exempt from tax on the benefit of the cost of the bicycle up to €1,000."

Calahonda52

GrumpyMe wrote: »

FROM THE OTHER THREAD:


This conflicts with the https://www.revenue.ie/en/jobs-and-pensions/taxation-of-employer-benefits/cycle-to-work-scheme.aspx

"Your employer may buy the bicycle and not require you to pay for it. In this case, you will be exempt from tax on the benefit of the cost of the bicycle up to €1,000."

Anyone disagree with the above re the 1,000.

so for a bike costing 3400
first 1000 paid by employer and is tax deductible in the employers books.
2400 will attract full BIK of say 50% so 100/month over 12 months?

GrumpyMe

From https://www.revenue.ie/en/jobs-and-pensions/taxation-of-employer-benefits/cycle-to-work-scheme.aspx
"...Your employer may buy the bicycle and not require you to pay for it. In this case, you will be exempt from tax on the benefit of the cost of the bicycle up to €1,000.
The cost of the bicycle may be more than €1,000. If this is the case IT, USC and PRSI will apply to the balance..."

Calahonda52 wrote: »

...first 1000 paid by employer and is tax deductible in the employers books...

AFAIK yes...

Calahonda52

Is the VAT on the bike reclaimable in the T2 box of the Vat 3 return?
If the company retains ownership of the bike and makes it available to the employee, what BIK applies?

GrumpyMe

Calahonda52 wrote: »

Is the VAT on the bike reclaimable in the T2 box of the Vat 3 return?

AFAIK - NO.

Calahonda52 wrote: »

If the company retains ownership of the bike and makes it available to the employee, what BIK applies?

Why would the employer want to retain ownership?
I don't see how this scenario would "qualify" as being within the scheme.


Employer can, within the scheme, purchase the bike and give it to employee BIK free even if employee does NOT repay the cost.

Calahonda52

Thanks,
re 1 I agree
its pretty clear here
https://www.revenue.ie/en/vat/reclaiming-vat/who-can-reclaim-vat.aspx
Re 2
I would have thought that employee would be liable for BIK on the cost, other than the 1000 we discussed before.
Thanks again

GrumpyMe

Calahonda52 wrote: »

Thanks,
re 1 I agree
its pretty clear here
https://www.revenue.ie/en/vat/reclaiming-vat/who-can-reclaim-vat.aspx
Re 2
I would have thought that employee would be liable for BIK on the cost, other than the 1000 we discussed before.
Thanks again

BTW Scheme only covers up to and including €1k anything else is outside the scope of the BTW scheme...

barneystinson

Calahonda52 wrote: »

Is the VAT on the bike reclaimable in the T2 box of the Vat 3 return?

Off hand I don’t know whether the VAT would be deductible or not.

However, if VAT is claimed on it, and then ownership transferred to the employee (as is the case for BTW scheme to apply), there’s a charge to VAT (i.e. T1) due on that onward supply of the bike - so the effect is the same whether VAT is claimed or not.

GrumpyMe

https://www.revenue.ie/en/employing-people/what-constitutes-pay/items-not-treated-as-pay/provision-of-bicycles-for-directors-and-employees.aspx

Value-Added Tax (VAT) on bicycles or safety equipment purchased

You must pay VAT on bicycles or safety equipment purchased for your employees. You cannot claim VAT back as the equipment is not used for the purposes of taxable supplies.

There you have it from the horse's mouth...;)

Calahonda52

So have finally ordered the bike so need to do the accounting.
It's my company so just wondering how to do the tax.
The bike is 2,200
A 1,000 can be expensed in the P&L, leaving 1,200.

So I could do a salary sacrifice arrangement (SSA) of 100/month for 12 months, or pay BIK on the 1,200.

The SSA requires an amendment to the terms and conditions of employment.

I am not liable to PRSI so if it was your company how would you do it?
Thanks as always.

GrumpyMe

AFAIK...
CTW/BTW scheme is applicable up to €1000. Anything beyond that is outside the scope of the scheme.

According to the CTW/BTW scheme rules the company is NOT obliged to have you repay anything. The company can purchase €1000 of "bike" for you, give you the bike, charge the €1k as an expense in the company P&L, and leave it at that. You don't owe the company €1k, you do not incur any BIK and you do not do any SSA.
€1,000 worth of bike free gratis and for nothing...

Once you go beyond the €1k the scheme does not apply in any way, shape or form.

davindub

Calahonda52 wrote: »

So have finally ordered the bike so need to do the accounting.
It's my company so just wondering how to do the tax.
The bike is 2,200
A 1,000 can be expensed in the P&L, leaving 1,200.

So I could do a salary sacrifice arrangement (SSA) of 100/month for 12 months, or pay BIK on the 1,200.

The SSA requires an amendment to the terms and conditions of employment.

I am not liable to PRSI so if it was your company how would you do it?
Thanks as always.

You are required to bik the remainder (direct provison of bikes for employees)

The entire amount is p&l and 1200 bik if no ssa, otherwise the ssa amount is off p&l.

But on the 2200 (no SSA)...corp tax 12.5% and add capital gains tax (e.g. 10% under ER relief) minus 41% bik on 1200 to calculate the tax relief (albeit long term).

Vs 41% tax relief under the SSA and no tax relief on the 1200 to be repaid...

I'll let you do the sums 🀔

Calahonda52

GrumpyMe wrote: »

AFAIK...
CTW/BTW scheme is applicable up to €1000. Anything beyond that is outside the scope of the scheme.

According to the CTW/BTW scheme rules the company is NOT obliged to have you repay anything. The company can purchase €1000 of "bike" for you, give you the bike, charge the €1k as an expense in the company P&L, and leave it at that. You don't owe the company €1k, you do not incur any BIK and you do not do any SSA.
€1,000 worth of bike free gratis and for nothing...

Once you go beyond the €1k the scheme does not apply in any way, shape or form.

Thanks for your reply
re the under lined
.
from here:
https://www.revenue.ie/en/jobs-and-pensions/taxation-of-employer-benefits/cycle-to-work-scheme.aspx
.
The cost of the bicycle may be more than €1,000. If this is the case IT, USC and PRSI will apply to the balance.

So IMO, it can apply for a spend >1,000.

However from here re the SSA
https://www.revenue.ie/en/employing-people/what-constitutes-pay/what-pay-includes/salary-sacrifice-arrangements.aspx
.
The SSA may only apply to the first 1,000?

Calahonda52

davindub wrote: »

You are required to bik the remainder (direct provison of bikes for employees)

The entire amount is p&l and 1200 bik if no ssa, otherwise the ssa amount is off p&l.

What do you mean otherwise the ssa amount is off p&l?

But on the 2200 (no SSA)...corp tax 12.5% and add capital gains tax (e.g. 10% under ER relief) minus 41% bik on 1200 to calculate the tax relief (albeit long term).

What is the CGT about?
Why 2200 if no SSA?

Vs 41% tax relief under the SSA and no tax relief on the 1200 to be repaid...

And ER PRSI on the BIK in a close company

davindub

Calahonda52 wrote: »

What do you mean otherwise the ssa amount is off p&l?



What is the CGT about?
Why 2200 if no SSA?


And ER PRSI on the BIK in a close company

Sorry I will seperate this for you.

1. Bike purchase

The bike purchase is a debit amount to the balance sheet (i.e. will be repaid by the employee). The amount not intended to be repaid is a debit to the p&l. So if the bike costs 2200 and the employee repays 1000, 1200 is an expense to the company. (NB 1200 is a distribution or dirs loan, must be taxed, the example below is based on distribution).

2. Tax efficiency - which option is the most beneficial to you (I am assuming you own 100% of the Share Capital)? You consider the Income tax liabilities but also the taxes due when you exit the company (may or may not be relevant to your perspective).

Bik amt assuming still outstanding after a year (1200* .135) = 162.

Scenario 1:
Ssa

Bik 162
Corp tax saved 0

Gross It deductible 1000 -162 (bik)

Paye & prsi saved = 368.72 (add in usc as well)

Scenario 2 cost is borne by co:

Corp tax saved 125
Cgt based on net assets reduction (1000 less corp tax * 33%) = 288.75

Paye on bik - 64.8
Prsi - 6.48

Total tax saving 288


Hope that makes sense, so the tax savings are greater using the SSA. Very rough figures btw, calculate yourself properly!

Calahonda52

Thanks for this.

I don't follow your math: what is the 0.135

Anyway I will put it into a s/sheet later but can you clarify the following:

from here
https://www.revenue.ie/en/jobs-and-pensions/taxation-of-employer-benefits/cycle-to-work-scheme.aspx

"There is a limit of €1,000 per bicycle purchased. The purchase can be made in any cycle shop."

Is this applicable to a director of a close company?


The second question is:
.
for an employee, the company pays the first 1,000: when is the BIK on the 1,200 due?

Thanks

davindub

Calahonda52 wrote: »

Thanks for this.

I don't follow your math: what is the 0.135

Anyway I will put it into a s/sheet later but can you clarify the following:

from here
https://www.revenue.ie/en/jobs-and-pensions/taxation-of-employer-benefits/cycle-to-work-scheme.aspx

"There is a limit of €1,000 per bicycle purchased. The purchase can be made in any cycle shop."

Is this applicable to a director of a close company?


The second question is:
.
for an employee, the company pays the first 1,000: when is the BIK on the 1,200 due?

Thanks

No problem.

The .135 is the preference loan rate for bik from revenue.

Proprietary directors can take part in the scheme.

The bik is due on the next payment made through the PAYE system on the balance outstanding (see loan rate). Do you intend to pay back the 1200? If yes, you can put it into directors loan = no bik (but close co rules, etc)

Calahonda52

davindub wrote: »

No problem.

The .135 is the preference loan rate for bik from revenue.

Proprietary directors can take part in the scheme.

The bik is due on the next payment made through the PAYE system on the balance outstanding (see loan rate). Do you intend to pay back the 1200? If yes, you can put it into directors loan = no bik (but close co rules, etc)

Great!, the fog is clearing, a little!
So the employee 1200 could be set up as a loan as well to avoid the big BIK hit in month 1?

davindub

Calahonda52 wrote: »

Great!, the fog is clearing, a little!
So the employee 1200 could be set up as a loan as well to avoid the big BIK hit in month 1?

Yes but only if the director utilises a directors loan.

A loan from the company to an employee will be liable for bik.

Calahonda52

davindub wrote: »

Yes but only if the director utilises a directors loan.

A loan from the company to an employee will be liable for bik.

Thanks again!
https://www.revenue.ie/en/employing-people/benefit-in-kind-for-employers/other-benefits/preferential-loans.aspx
.
1,200 at 13.5% at the all in BIK rate?

davindub

Calahonda52 wrote: »

Thanks again!
https://www.revenue.ie/en/employing-people/benefit-in-kind-for-employers/other-benefits/preferential-loans.aspx
.
1,200 at 13.5% at the all in BIK rate?

I'm not sure what you mean by "all in"? But the BIK tax due is €135 pa * IT

Note, this is still a "distribution" if outstanding at the CT filing date under close company rules (also must be less than 10% of net assets in the directors loan account). Or if for an employee, it could be challenged as salary if no repayments are made!

Calahonda52

Thanks for your contributions thus far.

Just crunching some numbers here: let's just stick with the employee example for now

If the bike costs 2,200, is the whole 2,200 allowable as a deduction in the CT calculation?

I suspect not

The 1,200 is subject to BIK so ER PRSI is payable.
Is that allowable as a deduction in the CT calculation?

davindub

Calahonda52 wrote: »

Thanks for your contributions thus far.

Just crunching some numbers here: let's just stick with the employee example for now

If the bike costs 2,200, is the whole 2,200 allowable as a deduction in the CT calculation?

I suspect not

The 1,200 is subject to BIK so ER PRSI is payable.
Is that allowable as a deduction in the CT calculation?

If the employee is paying for the bike by SSA and repays the 1200 = 0 CT

If the employer is paying, it is all deductible. 1000 the employer pays and the 1200 as salary

Calahonda52

Just looking at this from the point of view within the context of a single director close company where the director might be the spouse and the employee bike rider the husband so essentially the same bank accounts, so lets refresh's to them as the family.

Setting aside the difference between in tax treatment / timing between BIK/distributions/loans etc , which seem to be minimal for a cash perspective (12.5% CT vs 11.05% ER PRSI) and any CA 2014 net asset tests, the Bike to Work scheme does not seem to make any sense if you look at the aggregated cash position of the company plus the family.
Any thoughts?

davindub

Calahonda52 wrote: »

Just looking at this from the point of view within the context of a single director close company where the director might be the spouse and the employee bike rider the husband so essentially the same bank accounts, so lets refresh's to them as the family.

Setting aside the difference between in tax treatment / timing between BIK/distributions/loans etc , which seem to be minimal for a cash perspective (12.5% CT vs 11.05% ER PRSI) and any CA 2014 net asset tests, the Bike to Work scheme does not seem to make any sense if you look at the aggregated cash position of the company plus the family.
Any thoughts?

I'm not quite understanding what you mean by aggregate the cashflow of the family and the company?

But looking at the long term cost of the bike to the family and ignoring the overspend:

1. No BTW scheme - bike costs 1000 euros net salary. The family has 1000 less.

2. Company pays for the bike - 586 (125 less CT to pay, 288 CGT on 875 post CT cost of the bike), you can cover the 1000 cost of the bike with 586 from the families pocket when they sell the shares).

3. Employee pays for the bike with a SSA - 466 euros net salary cost (1000 less 52% PAYE tax less CT deduction of 14 euros). The family has 466 less.

So based on the above, the cost to the family of not implementing BTW is €534 euros or the additional cost of purchasing the bike by the company with no repayments is 120.


Exclusions from calculations in option 2 (add in if applicable):
1. ER relief / retirement relief.
2. Cost of providing free bikes to other employees (remember BIK applies if the employee receives a benefit no other employee can access)
3. Short term effect = no cost to family!

Calahonda52

Thanks again, I will crunch the numbers later.
Where can I find a tax reference to the CGT piece?

davindub

Calahonda52 wrote: »

Thanks again, I will crunch the numbers later.
Where can I find a tax reference to the CGT piece?

Its just cgt on disposal of shares. I.e. the shares owned by the director in the company
https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/selling-or-disposing-of-shares.aspx

I'm pretty sure there will be revenue guides in ER and RR if you google!

Calahonda52

https://www.revenue.ie/en/jobs-and-pensions/taxation-of-employer-benefits/cycle-to-work-scheme.aspx

Your employer may buy the bicycle and not require you to pay for it. In this case, you will be exempt from tax on the benefit of the cost of the bicycle up to €1,000.

I read this to mean all tax so where does the CGT come in?

davindub

Calahonda52 wrote: »

https://www.revenue.ie/en/jobs-and-pensions/taxation-of-employer-benefits/cycle-to-work-scheme.aspx

Your employer may buy the bicycle and not require you to pay for it. In this case, you will be exempt from tax on the benefit of the cost of the bicycle up to €1,000.

I read this to mean all tax so where does the CGT come in?

Just to be clear the 1000 euros is not subject to CGT itself, it is subject to the employee's income tax (and exempted by the scheme).

But the purchase has an impact on the wealth of the shareholders........so when they dispose of their shares (eventually), the cost of CGT is now relevant.

barneystinson

davindub wrote: »

Just to be clear the 1000 euros is not subject to CGT itself, it is subject to the employee's income tax (and exempted by the scheme).

But the purchase has an impact on the wealth of the shareholders........so when they dispose of their shares (eventually), the cost of CGT is now relevant.

Ah Jaysus Davin steady on lad, I’m not sure if that really warrants consideration in a decision like this.

davindub

barneystinson wrote: »

Ah Jaysus Davin steady on lad, I’m not sure if that really warrants consideration in a decision like this.

Hmm, suppose that depends on your outlook, some businesses are fixated with saving income tax/ salary to increase the benefit of Retirement Relief and ER or extract cash in general.