BikeBiz Bicycle and cycling retail news
Booost is the ACT-approved scheme, see link below for other schemes.
HOW BOOOST WORKS:
1. BOOOST is an employee benefits provider offering a discount cycle purchase scheme based on the Government’s “Green Transport Plan”, promoting increased cycle usage through tax incentives.
2. The Inland Revenue tax break states that employers may loan bikes and safety equipment to their employees as a tax free benefit so long as the bikes are used mainly for cycling to and from work, for journeys made whilst at work or for part of those journeys.
3. Employers will decide to either purchase or lease all of the bikes ordered by their employees.
4. Employers will typically use Salary Sacrifice – whereby an employee agrees to reduce their gross salary in exchange for a non-cash benefit in this case a bike – as a means of getting the employee to reimburse them for the cost of either purchasing or leasing the bikes.
5. Customs and Excise have clarified that it is possible for employers to reclaim the VAT on the purchase or lease costs because the employer is providing the benefit for the good of the business i.e. to improve the health and fitness of staff and thereby reduce absenteeism; improve staff morale and productivity; become a more attractive employer and therefore reduce recruitment costs and improve retention rates; improve their Corporate Social Responsibility standing etc. If an employer can reclaim the VAT, there is no need to pass that cost onto their employees in the form of Salary Sacrifice.
6. Customs & Excise have also clarified that because Salary Sacrifice is neither a deduction nor a charge – it is merely an entitlement to a reduced gross salary – it is not a consideration for VAT purposes. Therefore employees do not need to be charged VAT.
7. So, employees therefore incur the retail cost of a bike, less VAT, and less the PAYE and NI savings that they make which depend on their individual tax and salary circumstances. They are also benefiting from 18 months free credit, effectively without any credit checking being undertaken.
8. The tax break says ‘loan’ not ‘own’, so ownership cannot transfer to an employee during the scheme without the employee receiving a taxable benefit unless they pay fair market value, plus VAT, for the bike. Therefore ownership is not typically transferred until the end of the scheme or not at all. Schemes are typically run over 18 months after which time the employer has two choices:
a) They can allow employees to continue to loan the bikes at no cost, the employer having been reimbursed for all the expenses incurred during the first 18 months through Salary Sacrifice.
b) Or, they can sell the bikes to their employees at the then fair market value. Typically finance providers will sell bikes for 5% of their original value plus VAT. This is based upon the likely cost of making the bike fit for the purpose of resale. It is for individual tax offices to decide whether the fair market value is acceptable, but the finance companies are successfully arguing the case based upon their experiences in other asset financing arenas such as computers.
9. If the PAYE, NI, VAT savings and the typical cost of 18 months credit are taken into account, employees can save up to 50% of the retail value of a bike and related safety equipment.
