We are introducing cycle to work scheme at our workplace. My question is how to account for output tax and employee deductions. For example if the cycle costs us £100 what do we need to deduct from employee salary and for VAT?
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Aware of but not looked into the scheme in detail, but isn't it just a way of employees purchasing a bicycle in stages out of gross income. I don't think its ever the employers asset so I suppose vat doesn't come in to it and employee buys it gross.
Depends on the term and what happens at the end of it
The idea is that you buy the bikes and so have ownership of them and then provide them to the employee. This is usually done in exchange for a salary sacrifice (but there's no requirement for that), and usually covers a fixed period at the end of which there are essentially two options:
you take the bike back, flog it to a 3rd party and provide the employee with a new bike.you flog it to the employee, usually at HMRC's "matrix" value (see http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm).
On the assumption that you want a nil overall cost to you, that you will use a 12 month term, befire flogging the bike to your employee, it works like this for a £100 bike.
Purchase cost including VAT £100, reclaim VAT of £17, net cost £83. You will have to charge the employee £18 including VAT (under HMRC's matrix) at the end of the term, accounting for £3 VAT, giving you a net receipt of £15. So you have £68 (£83 - £15), plus VAT of £14 (total £82) to recoup from the employee over the other 11 months of the term. So the monthly salary sacrifice is £7 for 11 months, followed by £18 in month 12. You account for VAT of 1/6th of each salary sacrifice.
Employee ends up paying a total of £95 for a £100 bike that they could probably have bought personally for less than that amount.
If you want, you can discount the payments further in order to pass your NIC saving on to the employee. ie total payable by the employee by salary sacrifice is £82 + £18 = £100, on which you will save employer's NIC of £12 (13.8%/113.8%), so the amount to be spread of the first 11 months of the term is £82 - £12 = £70, giving salary sacrifice amount for months 1 to 11 of £6.
Employee ends up paying £84 in total.
For bikes costing more than £500, the benefits of the scheme are further eroded because HMRC's matrix values are higher.