Following on from our articles on BOOOST – the company which helps businesses take advantage of government tax breaks – and its tax-break bike scheme, we’ve managed to get further clarification from BOOOST about the way the scheme works. The good news is that there are indeed big savings to be made on bikes: The bad news is that it’s not quite so straightforward as it first appeared. In fact, on paper it’s significantly more complicated. Are you sitting comfortably?
Rather than the employer buying the bikes and then selling them straight on to their employees minus tax, the employer either purchases or leases the bikes and then
loans them to their employees as a tax-exempt benefit. As an employee you pay for the loan through a reduction in your gross monthly salary each month. So for the period of the loan, it is not, technically, your bike.
The savings come through the employer claiming back any VAT paid on the equipment and passing this saving, 17.5% , on to you, the employee. In addition, because you’re being paid less each month, you pay less PAYE and NI contributions, which add to the savings.
At the end of the loan period, the employer may give you a chance to buy the bike at ‘fair market value’. Both the hire period and the monthly repayments are decided by the employer. According to Chris Morris, Managing Director of BOOOST, your monthly payments should reflect the total hire cost for the employer divided by the number of months that the scheme is running: The total hire cost won’t only be the value of the bike though, it will include any additional finance charges your company had to shell out for, you’ll have to check with them what that might entail but it’s unlikely to be much.
‘May give me a chance to buy the bike? Won’t I have done that already?’ you might well ask. Well, your company can’t promise to sell you the bike at the outset of the scheme as, you’ve guessed it, this would be in breach of the OFT tax regulations. So, the purchase at the end is a formality of paying for the market value of the bike, which in paying all your monthly payments you should already have done. There seems to be an element of trusting your employers here, but given that they’re unlikely to want a pile of second-hand bikes to dispose of it seems reasonable to expect them to negotiate the price fairly.
And the bike isn’t mine? Not until it’s officially sold to you at the end of the scheme, no. But don’t plan on dumping a buckled wheel on your boss’s desk and demanding a replacement, it’s written into the hire agreement that you’re responsible for the insurance and maintenance of the bike during the scheme, so breakages and losses are your own look out. And just as a reminder, officially the primary purpose of the bike has to be for commuting.
Phwew, we hope that’s all a lot clearer now, though we wouldn’t be surprised if many see it as a less enticing offer than it first appeared, though in practice it shouldn’t be much different. What is clear is that the exact details and savings will differ from company to company, but yes, it could be up to 50% of retail.
We think we got the full picture from BOOOST, but if you’ve got anymore questions then post them up on the forum and we’ll find out the answers.
If your employer is interested in joining the scheme they should contact BOOST. Oh, and if you’re wondering, as an independent company, BOOOST makes it’s money through a commercial link-up with the participating manufacturers.