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Can someone explain the details of the Cycle to Work Scheme?

dinneenp

From 1 January 2009, the provision of bicycles and associated safety equipment by employers to employees who agree to use the bicycles to cycle to work will be treated as a tax exempt benefit-in-kind. The exemption may only apply once in any five year period in respect of any employee. There will be a limit on the value of such purchases of €1,000 for each employee.

But can anyone explain how it'll work

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Chips Lovell

teufelswerk wrote: »

2. I haven't seen any case law in relation to the bike to work scheme and would be surprised if such exists.

You don't need case law, there are clear rules published on the administration of the scheme.

teufelswerk wrote: »

3. Saftey equipment has not been explicitly defined...

Yes it has (as outlined in the document above). I got a copy of the list from Revenue within days of the scheme being announced.

The following safety equipment will be covered by the exemption:
•Cycle helmets which conform to European standard EN 1078
•Bells and bulb horns
•Lights, including dynamo packs
•Mirrors and mudguards to ensure riders visibility is not impaired
•Cycle clips and dress guards
•Panniers, luggage carriers and straps to allow luggage to be safely carried
•Locks and chains to ensure cycle can be safely secured
•Pumps, puncture repair kits, cycle tool kits and tyre sealant to allow for minor repairs
•Reflective clothing along with white front reflectors and spoke reflectors

teufelswerk

That list is not claiming to be an exclusive list. It had not precluded the items as I've mentioned before. It is not my position to defend the validity of the purchase but I cannot see how it's been concluded as illegal. It meets all other intentions and purposes of the scheme, has not been precluded and has not been disproved anywhere to my knowledge.

I would always err on the side of caution when accusing someone of doing something illegal particularly when there has been no judgements made yet

Chips Lovell

teufelswerk wrote: »

That list is not claiming to be an exclusive list.

That's stretching it in fairness. It says "The following safety equipment will be covered by the exemption". It makes no inference that other categories of equipment will be covered.

If you want though, I'll ring Revenue tomorrow and ask them if a grand's worth of protein bars are covered. That should clear it up.

EDIT: I should probably add that I put a series of queries into Revenue after the scheme was announced and I just checked back over the response. I asked for example could you use the scheme to purchase components like wheels or groupsets. The answer was no, only bikes and the equipment on the list.

teufelswerk

Stretching it a bit is the crux of this issue, it doesn't imply any illegality. As for ringing Revenue... Be my guest as it won't change anything for either of us. A retrospective review by Revenue of an individual purchase based on someone's interpretation of the scheme is not the same as you ringing before a purchase.
In either case it has nothing to do with me personally

Chips Lovell

teufelswerk wrote: »

Stretching it a bit is the crux of this issue, it doesn't imply any illegality. As for ringing Revenue... Be my guest as it won't change anything for either of us. A retrospective review by Revenue of an individual purchase based on someone's interpretation of the scheme is not the same as you ringing before a purchase.
In either case it has nothing to do with me personally

I can't figure out now whether you're just trolling or unwilling to admit you were wrong in claiming you can buy "just about anything under the scheme in practice", since it would take a perverse streak of logic to read that document and conclude that using the scheme to buy a grands worth of protein bars is anything other than tax fraud.

amused2death

In most jobs if you consumed their "safety equipment" you could expect to be fired. They don't like that sort of thing!

Beasty

The Revenue Commissioners may "allow" other safety equipment. It is up to the employer to satisfy themselves safety equipment is allowed. If it is not listed in the legislation, and the employer does not confirm the Revenue will allow it, then yes if it is not "allowable" the employer has broken the law.

On the audit point, the Revenue simply have to ask for the purchase invoice. They are unlikely to check whether the bikes are actually being used "mainly" for commuting, as this is not the relevant test. It is the intention at the time of purchase that matters, and it would be virtually impossible to disprove an individuals assertions on such a matter.

The problem with tax is that for many people a little knowledge is a very dangerous thing. History is littered with people who thought they could get away with interpreting tax law their own way because it suited them to do so - just read the quarterly produced Revenue defaulters list for examples (there would be many more who never get "named and shamed" because the amounts involved are small, or the taxpayer took one of the numerous opportunities to admit their wrondoing before it reached that stage)

Beasty

I would add there is unlikely to ever be any case-law on this, as no-one would be foolish enough to ever want to argue such a point before a judge!

ShaneIRL

Hi All,

Not sure if this is covered somewhere in the thread and if so I apologise. With regards the cycle to work scheme I am in a bit of a different situation, I am both the employer and the employee (i.e. I am self employeed and have set up a 'company' that I do dealings through - typical contractor situation.)

In this instance can anyone tell me if I were to buy a bike (as the employer) and use it as an employee what would it end up costing me. My accountant has told me that the cost of the equipment is fully expensable but was wondering on your thoughts.

Thanks

seamus

Your accountant is the man in the know here. The cycle to work scheme doesn't apply to you, as you are self-employed.

Yes, you can expense the cost of your bike and equipment, if you use the bike in the course of your work, or you use to the bike to travel from your place of work to your clients' sites.
That you may use it for spins at the weekend is incidental.

Lumen

ShaneIRL wrote: »

I am self employeed and have set up a 'company' that I do dealings through - typical contractor situation.

Depends what you mean by "self-employed".

Basically, the scheme applies if your salary is processed under PAYE.

Many contractors operate as proprietary directors of a limited company and pay themselves a salary taxed under PAYE. In that case, you're in.

If the scheme does not apply your company can still purchase the bike outside the scheme, and you may get away with if not used for private purposes.

I err on the side of self-preservation (i.e. not screwing the Revenue), but YMMV.

ShaneIRL

Lumen wrote: »

Depends what you mean by "self-employed".

Basically, the scheme applies if your salary is processed under PAYE.

Many contractors operate as proprietary directors of a limited company and pay themselves a salary taxed under PAYE. In that case, you're in.

I err on the side of self-preservation (i.e. not screwing the Revenue), but YMMV.

Hi Lumen,

Yes I am operating as a proprietary director of a limited company and I am subject to PAYE. So if the scheme does apply in this instance how would payment for the bike work (i.e. how much would I be liable for?). I am currently looking at a bike including accessories totalling €800 so how much on average would I end up paying.

Thanks for taking the time to reply.

Lumen

ShaneIRL wrote: »

Yes I am operating as a proprietary director of a limited company and I am subject to PAYE. So if the scheme does apply in this instance what would payment for the bike work (i.e. how much would I be liable for?). I am currently looking at a bike including accessories totalling €800 so how much on average would I end up paying.

Your company would pay €800. As simple as that, just like any other thing you buy (IT equipment etc). You don't need to bother with any salary sacrifice arrangements.

You/your accountant will need to account for it properly, because whilst it is a tax-free BIK for the employee, the employer cannot reclaim the VAT.

ShaneIRL

Lumen wrote: »

Your company would pay €800. As simple as that, just like any other thing you buy (IT equipment etc). You don't need to bother with any salary sacrifice arrangements.

You/your accountant will need to account for it properly, because whilst it is a tax-free BIK for the employee, the employer cannot reclaim the VAT.

So in my instance the cycle to work scheme can be applied as a basic expense and tax paid on that expense accordingly? Good to know. Thanks

Beasty

ShaneIRL wrote: »

So in my instance the cycle to work scheme can be applied as a basic expense and tax paid on that expense accordingly? Good to know. Thanks

basically the company buys the bike and gives it to you

When you say tax paid on the expense - the company will pay the VAT, but it will not be a taxable benefit in kind, so you (the employee/director) don't have to pay any tax, PRSI or levy on the benefit

teufelswerk

ShaneIRL wrote: »

So in my instance the cycle to work scheme can be applied as a basic expense and tax paid on that expense accordingly? Good to know. Thanks

I'd be cautious as to this being a normal business expense. The problem is that the bike is not a business expense. The company does buy the bike but this will be expensed effectively through wages. Claiming for the bike as an expense would decrease your distributable profits as well. I may be incorrect but I cannot see this as a deductible expense after you already get the benefit under your schedule E PAYE employment.

blorg

AFAIK you can only claim a bike 100% as a business expense if it is used exclusively for business purposes. A postman's delivery bike would be a good example. I believe you could claim a percentage as a business expense if a percentage of use was business but really you would need to be working as something like a courier for this to fly at all. This scheme is for bikes to cycle to and from work which is not a business expense.

seanie500

I bought a bike in June paid for it myself as company wasnt doing bike to work scheme. It has now announced that it is doing it. Can i now avail of scheme? I bought in halfords and that is covered by my company's scheme.

I read somewhere before that if u get your invoice as being part of scheme then it should be ok so if i get halfords to sort out my invoice then i should be good?

If it was to work though my company would need to give me 1K in cash as i don't want a second bike!

anyone know anything on this?

blorg

seanie500 wrote: »

I bought a bike in June paid for it myself as company wasnt doing bike to work scheme. It has now announced that it is doing it. Can i now avail of scheme? I bought in halfords and that is covered by my company's scheme.

I read somewhere before that if u get your invoice as being part of scheme then it should be ok so if i get halfords to sort out my invoice then i should be good?

If it was to work though my company would need to give me 1K in cash as i don't want a second bike!

anyone know anything on this?

You can buy another bike on the scheme no problem. You can't get tax back on the bike you have already bought.

Beasty

blorg wrote: »

AFAIK you can only claim a bike 100% as a business expense if it is used exclusively for business purposes. A postman's delivery bike would be a good example. I believe you could claim a percentage as a business expense if a percentage of use was business but really you would need to be working as something like a courier for this to fly at all. This scheme is for bikes to cycle to and from work which is not a business expense.

In this case it is used 100% as a business expense, as it's immediately given to the employee. It's essentially a cost of employing someone, and no different from salary costs in terms of deductibility as a business expense. Instead of paying the employee in cash he/she is being paid in kind - in this case with a bike.

The main difference is there is a specific tax exemption for the individual, but this is actually no different from certain other "employee benefits", such as pension contributions or share awards, where tax relief is available to the company for the "expense", but the employee can avail of certain tax exemptions to avoid a taxable benefit in kind

The analysis gets a bit more difficult if the company owns the bike, but makes it available to the employee to cycle to and from work. In this case it would be a taxable benefit in kind, but the company may be able to claim it as a business expense (without being able to reclaim VAT), as an "employment" cost (similar to a company car, although the rules in the case of a car are far more complicated, and certainly not for the cycling forum;))

teufelswerk

The bike won't be a business expense, the company is responsible for administering the scheme and the bike expense will be reflected as a wages expense. It is not the case that the invoice for the bike is used by the company other than for the laughable possibility of a Revenue audit of the scheme.

Beasty

So what's your technical analysis of the company car position I mentioned above teufelswerk? EDIT - this is why there are special benefit in kind tax rules. The employer gets tax relief on the expense and usually (but not for the bike to work scheme) the employee gets taxed on the benefit

teufelswerk

Beasty wrote: »

So what's your technical analysis of the company car position I mentioned above teufelswerk? EDIT - this is why there are special benefit in kind tax rules. The employer gets tax relief on the expense and usually (but not for the bike to work scheme) the employee gets taxed on the benefit

Pity that you edited that, the attempted sarcastic cut is now missing. My "technical analysis" is that you are mistaken. How does the company claim the bike as an expense? The money is paid by the employee at the end of the day. The employee still pays 1000 but the PAYE system allows a deduction for this. In the case of the car, that's owned by the company and only an element is used by the employee. The BIK payable by the employee reflects the fact they are using something that they didn't buy. If you want specific advice I'll give you an address to send your cheque to.

Beasty

teufelswerk wrote: »

Pity that you edited that, the attempted sarcastic cut is now missing. My "technical analysis" is that you are mistaken. How does the company claim the bike as an expense? The money is paid by the employee at the end of the day. The employee still pays 1000 but the PAYE system allows a deduction for this. In the case of the car, that's owned by the company and only an element is used by the employee. The BIK payable by the employee reflects the fact they are using something that they didn't buy. If you want specific advice I'll give you an address to send your cheque to.

I edited it because I wanted to understand how you would compare/contrast a similar situation. In the case of a car, even if it is used 100% non-business, the company can claim the expense (as a capital asset), as a cost of employing someone. Similarly the employer can incur the cost of providing private health insurance - the company receives no direct benefit from the insurance, but gets an indirect one because of the "benefit" to the employee

The thread had moved on from salary sacrifice arrangements to discussing an alternative which may be attractive to a "one-man company". In effect the company can simply buy the bike and give it to the employee. I was simply (and correctly) pointing out that there is no taxable benefit on the employee, and the company can claim the cost as a business expense (it's in effect no different from wages, the employee is being paid by a tax-free bike rather than taxable cash)

The thread further evolved when you stated that it would not be an allowable business expense. Your latest post suggests you were referring to the salary sacrifice arrangements. My own technical analysis in this case is as follows:

1. The employee agrees to forgo salary in return for the bike
2. The employer buys the bike and immediately sells it to the employee in return for the salary sacrifice

In essence the employer has replaced his wage expense with a (non-taxable on the employee) benefit in kind expense. Whether you call it wages or benefit in kind, it is still an allowable cost of employing someone in the business. I agree by the way that the bike is not used in any the business after the initial purchase, but that is not the relevant point. It was simply used as an employee incentive, and relief (to the company) is available on that basis

In terms of your offer of advice, I am happy to rely on my 25+ years direct experience in the tax business, but thanks anyway;)

Sorry for the long-winded reply, particularly as most readers will probably have no idea what we are going on about, but I do think, for those who are interested, that it is important to avoid any misunderstandings

teufelswerk

I had the impression that it moved to advising him to buy the bike throughout the company... Other than that makes no commercial or logical sense when the scheme is clearly so advantageous. Expensing the bike would reduce the tax liability by 12.5% in the company. He would then be charged BIK in his PAYE for having use of the bike. That makes no sense to me at all.
The bike scheme saves him his full tax liability c.54%. At no stage does the company own the bike or have any really claim to the bike. That's what makes it so onerous on employers and why some companies won't administer the scheme.

"In essence the employer has replaced his wage expense with a (non-taxable on the employee) benefit in kind expense. "

I don't understand this part of your reply either. The company does not have any liability to pay BIK as this is levied on the employee. The cost of the bike to the employer is a wage cost... Nothing else under the btw scheme.

As for a car bought by a company that is used 100% by an employee, that is a mental approach. In the case of a close company such as that of shaneirl he could have to disclose this Quasi-loan to the ODCE as it has no commercial basis and is effectively a directors loan

gsxr1

my missis. works in Tesco and is on 36k a year.
15 miles to work.

How do we go about getting a brand new bike.

Is there any advantage?

where do we start the process of a 40% off bike.

I have been riding with friends on the trails who all have all 1k bikes through the scheme . They say I should try. Im trying to keep up on a much lesser yoke.

justo

sorry if this has been posted before...

Does anyone have a formula to calculate how much a bike will cost you (as an employee) over the cost of a year?

If I want to make a purchase of a bike and gear of say, 950E what will the bike end up costing me when the savings have been taken into consideration?