Cycle to Work scheme - tax code change

Hi, I purchased a bike for £3k on the Halfords scheme through my employer, my tax code was SBR for 6 months which is the Scottish basic rate when I should have been on a higher rate tax code. I picked up on this and payroll advised that it would work its self out at the end off the year, however that was not the case, there appears to be no mechanism to retro correct if you were on the wrong tax code, this has left me out of pocket by circa £300.

I have discussed with HMRC at length and it is not there responsibility, I have contacted 4 C2W schemes by telephone and each person advised it is for payroll to correct as the loan is between my employer and myself but payroll advise they have no means to pay me the money back. I have now raised a formal grievance with my employer to get resolved. 

Any advise on this matter would be greatly appreciated.
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  • molerat
    molerat Posts: 31,520
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    edited 18 December 2023 at 1:05PM
    C2W should have no effect on your tax code, C2W is not reported to HMRC.  If your tax code has been corrected to a cumulative code, that is one without an X, M1 or W1 suffix, then it has auto corrected itself and any overpaid tax would have been repaid.  If it has not changed then you need to speak to HMRC, your code is a matter between you and HMRC, no one else.  There must have been some other reason for you to have been put on SBR, your on line tax account should show the make up of the current and last previous code used.  If your employer is reporting a declarable benefit when there is not one in place then that is between you and them.

  • Was on SBR code when I became an employee after I closed my Ltd company. Because I was on SBR code I received less benefit as I should have been on a code for higher tax payer. So when I noticed this I got my tax code corrected as yes that is my responsibility. 

    Retrospectively HMRC can and collect the tax that had under paid while on the SBR code, however there is no mechanism to recover the benefit I should have received if my tax code was correct.

    As the C2W scheme is effectively a loan between myself and employer, it is in my mind up to payroll to resolve, which they say they can as there is no means to do this.

    this has disadvantaged me by ~£300
  • molerat
    molerat Posts: 31,520
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    edited 18 December 2023 at 2:50PM
    What do you mean by "benefit" ?  How are your £300 out of pocket ?
    C2W only affects how much you are paid, it has no effect on your tax outside of that.
  • what I mean when I refer to benefit is the sum that you save when you enter this scheme

    on the C2W scheme if you are a lower rate (20%) tax payer the total salary sacrifice would have been £2040, and if your a higher rate (40%) tax payer £1740, so for me 6 months were based on lower rate tax payer tax code where in real terms the bike was costing me £50 more per month 
  • BoGoF
    BoGoF Posts: 6,756
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    edited 18 December 2023 at 4:24PM
    bigbob2 said:
    what I mean when I refer to benefit is the sum that you save when you enter this scheme

    on the C2W scheme if you are a lower rate (20%) tax payer the total salary sacrifice would have been £2040, and if your a higher rate (40%) tax payer £1740, so for me 6 months were based on lower rate tax payer tax code where in real terms the bike was costing me £50 more per month 
    It's a notional benefit though. If you salary sacrifice an amount you do not pay any tax on it at all. Say your pay was £3500 per month any you salary sacrifice £500 leaving £3000 then you have saved £500 at your marginal rate of tax regardless of what tax code was applied. HMRC will get round to taxing you at the higher rate on the net amount at some point.
  • so the net cost to me for the bike is/was ~£145 and not the £200 it was costing me for the first 6 months while on the SBR lower rate (20%) tax code, when I got HMRC to change the tax code I was paying the correct amount pm for the bike.

    So my concern is that when there is a tax code change when your in one of these schemes Payroll don't have any way of making that adjustment to compensate retrospectively which should not be the case.

    So the lesson here is that you need to make sure your tax code is correct as it is proving difficult to recover the full benefit that this scheme offers.

    Further the online calculators should consider where in the country you live as higher rate tax payers are £43.6k in Scotland and £50.2k in England.

    This scheme is a good idea but not that dynamic and in some cases blatantly misleading
  • BoGoF
    BoGoF Posts: 6,756
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    edited 18 December 2023 at 4:37PM
    It has nothing to do with your tax code.

    Not sure how many times that has to be said but the message isn't being received. Lets say you have a pre C2W annual income of £12,000 all liable at 40%. You will be liable to pay £4800. You salary sacrifice to £10,000 leaving £4000 tax due a saving of £800. It does not matter if a BR code is applied to this by your employer as HMRC will at some point (maybe after year end) send you a calculation to collect the underpaid tax so either way you will pay higher rate tax on £10,000
  • molerat
    molerat Posts: 31,520
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    edited 18 December 2023 at 5:51PM
    Your salary is reduced by the same C2W payments irrespective of your tax code and how much tax you are paying.  Over the time you were taxed at SBR the savings would have been lower than if you had been a HR tax payer.  But as soon as that new correct tax code was applied, as long as it did not have the X, M1 or W1 suffix, the whole of the year's earnings to date were taken into consideration and those savings were fed back in, you are not out of pocket.  PAYE looks back at the year as a whole, you may not have got it all back in the first payment but it will all be there by March.
    As an example if earning £60K with £100 pm C2W payment and a 1257 code. I shall ignore the NI savings as that would be the same irrespective of any tax changes.
    With £5000 pm you pay £1102.57 tax, a total of £13234.58 tax for the year
    If you sacrifice £100 that brings your pay down to £4900 with £1060.57 tax, £12730.28 for the year,a saving of £42 pm, £504 over the year.
    For the first 6 months you were taxed at BR on £4900 paying £980 tax.  
    When the code was corrected to 1257 the first month tax would have been £1546.13 to collect the underpaid tax (£80 pm x 6)  reverting back to £1060.58  for the next and following months.  There are some slight monthly variations, more so due to the Scottish tax rates.
    Total tax payable for the year would be £12730.28, exactly the same as if you had been on the correct tax code from the start.  Your monthly saving was actually greater than it should have been for the first 6 months, the downside was having to pay that "loan" back in M7.


  • penners324
    penners324 Posts: 2,581
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    Why are you on SBR?

    Check your online tax account. It will tell you what your tax code is. If your employer isn't using that then complain to payroll and show them evidence.

    C2W is nothing to do with it. 
  • molerat
    molerat Posts: 31,520
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    Why are you on SBR?

    Check your online tax account. It will tell you what your tax code is. If your employer isn't using that then complain to payroll and show them evidence.

    C2W is nothing to do with it. 
    They are no longer on SBR.  Their argument is that they did not receive the 40% relief on their C2W whilst only paying 20% tax and cannot see that this has been corrected with the new code.

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