Cycle to Work scheme - tax code change

bigbob2

was put on SBR when I became an employee and folded my Ltd company, probably because I used to pay myself £12k pa and took dividends, but didn't notice this till 6 months in. this was on tax year 2021 to 2022.

When my tax code changed the net amount I paid for my bike changed, the C2W scheme savings are dependent on your tax code, check out the online calculators, if your lower rate tax payer you make less of a saving when you buy a bike on this scheme.

When we ran the numbers it was quite clear, when I stepped into the scheme on the SBR code I was paying ~£200 pm net for the bike, when I completed the last payment on S1190L M1 I was paying ~£145 pm net for the bike. I over paid for the first 6 months.

Had to pay HMRC back a few thousand for the 6 months my tax code was incorrect.......that wasn't an issue as I expected that as I had under paid my tax for that period.

But the net cost of the bike was not the projected £1740 as detailed on the online calculator, it was over £2k.

So yes I was disadvantaged as the C2W scheme has no mechanism to handle tax code changes as your tax code determines weather you are a lower/higher rate tax payer.

bigbob2

Payroll confirmed that I overpaid for the bike for first 6 months by ~£50, that is not up for dispute, its now just a case of how do they/Payroll compensate myself for the circa £300 I overpaid.

Initially Payroll advised it would be HMRC that would make the adjustment, but after numerous conversations with HMRC that proved not to be the case, the responsibility sits with Payroll.

bigbob2

my calculations

bigbob2

correspondence from Payroll

molerat

You have a set amount deducted from your salary to pay for your C2W.  That is the sole responsibility of your payroll dept, they have no responsibility for anything else so there is no point whatsoever in speaking to them about it.  If they have set that deduction correctly that is the end of the matter, they owe you nothing nor are they responsible for compensating you.  Your savings are based on how much tax you save by reducing your salary.  It is irrelevant what your tax code is, yes it may affect the monthly saving you see in your pocket, but at the end of the year when HMRC reconcile your tax and sort any adjustment you will have had the correct tax saving.  You need to look at your overall income for each individual tax year, not calendar years, and how much tax you paid compared to how much you would have paid without the sal sac.

sheramber

Has your tax for 22/23 been finalised by HMRC?  End of year reconciliation  should sort it out.  

If that has been done, your extra relief would be used in the mix if you liability and be set against the underpaid  tax, thus reducing it. 

Wht does your personal tax account state for 22/23?

bigbob2

sheramber - 22/23 figures are not available when I login to HMRC online, they only go as far as 21/22

molerat - yes, agree £250 pm was taken from my gross salary regardless what tax code I was on, but depending what tax code I'm on determines what saving I make on the C2W scheme, that is clearly observed in the figures I shared above. After speaking with 3 of the C2W schemes, they all advised that it was for Payroll to make the correction as the loan for the bike sits with the company and this has nothing to do with HMRC, HMRC also said the same when I called several times. Payroll agree that I did not benefit from the scheme as a higher rate tax payer should have but say they have no means to make any correction. That's why I have now escalated my initial grievance to a formal grievance.

BoGoF

bigbob2 said:

sheramber - 22/23 figures are not available when I login to HMRC online, they only go as far as 21/22

molerat - yes, agree £250 pm was taken from my gross salary regardless what tax code I was on, but depending what tax code I'm on determines what saving I make on the C2W scheme, that is clearly observed in the figures I shared above. After speaking with 3 of the C2W schemes, they all advised that it was for Payroll to make the correction as the loan for the bike sits with the company and this has nothing to do with HMRC, HMRC also said the same when I called several times. Payroll agree that I did not benefit from the scheme as a higher rate tax payer should have but say they have no means to make any correction. That's why I have now escalated my initial grievance to a formal grievance.

It is only 'clearly observed' by you as you are missing the whole point - the £250 per month was taken from your income before PAYE was applied therefore you have not paid tax on it. When HMRC calculate your tax (strange your 22/23 is missing from your PTA, have you still to self assess?) you will have paid tax at 40% on that net amount. So, final attempt an an explanation - had you not salary sacrificed £3000 you would have paid tax at 40% on it of £1,600. Ignore what tax code was applied, when the final calculation is done you will have paid 40%. By salary sacrificing you paid £0 tax (and NIC) on it. That is your 'saving'. as a higher rate taxpayer. 

bigbob2

BoGoF - I fully understand that the £250 pm is taken off my gross salary then tax is applied, but when they had my tax code wrong at the lower rate (tax 20% + NI based on 12%) I received less of a discount for the first 6 months than I expected if it were on the correct higher rate tax code (tax 40% + NI based on 2%).

You can see that clearly on the cal SS above that I posted 19 Dec @ 11:35.

The C2W online calculators are indication only but not accurate, being a lower rate tax I would have expected to pay ~£170 pm net, but in actual figure was nearer to £200 pm net for the first 6 months.

But when my C2W scheme ended the delta between what I got before/after was ~£140 pm net.

So yes when HMRC corrected my tax for 21/22 I would have received 42% (inc NI) discount on my bike so on a £3k bike that would be saving of £1260 and net cost to me of £1740.

Also found my 22/23 tax calc on the HMRC site, it was in my messages, there is a 'Plus other adjustments' for ~£2k tax that I had to repay from a previous year, this will be for when I was on the wrong tax code. But I now agree that Payroll wont need to make any adjustment as taxable income at the higher rate will have captured the C2W adjustments. Just a shame I don't have a breakdown of how HMRC calculated the ~£2k. 

Thanks to everybody that responded to this thread, much appreciated :-)

penners324

There is nothing your payroll company can do about this.
The correct deduction for the C2W scheme was made and the correct tax was paid each month as per your tax code for each month.

HMRC will have to sort this out, probably at the end of the tax year or your self assessment