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Just want to check that my theory is correct.
Say someone has 3 kids and so gets 2400 per year in child benefit.
And they earn somewhere in the 50 to 60k region.
Cycle to work scheme means that you avoid tax at 40% and NI at 12%, so a bike of 1k actually costs £480.
Now, because the 1k bike is salary sacrificed the taxable pay reduces by 1k. That 1k reduction means that you gain back 10% of child benefit, or £240.
So does a 1k bike actually cost £240???
With a salary like that, does it matter?
#firstworldproblems
In the nicest possible way, I really hope it doesn't. There are better things to spend tax on (or I suppose more correctly - not collect tax) than giving a high earner an even cheaper push bike.
I would imagine that the OP is correct, salary sacrifice e.g bike scheme is a way of reducing your effective taxable salary which is used for the means testing of child benefit.
convert - it does seem daft, but then people would be daft not to take advantage of these things.
It is possible to pay more into a pension, has the same benefits of tax savings.
allthepies, it's not a problem, just astounding that this can be true
That's nice and moral - the Telegraph encouraging high-earners to dodge the system.
[i]"you could ask your employer to reduce your salary but make up the difference in your workplace pension scheme.
This could reduce your salary to less than £50,000, entitling you to full child benefit."[/i]
Guess it goes on all the time though.
Higher rate NI is 1% not 12% so you've overstated the c2w savings, but part from that yes - salary sacrifice reduces your earnings as far as the tax man is concerned.
"you could ask your employer to reduce your salary but make up the difference in your workplace pension scheme."
does go on all the time , infact using this system is encoraged by HMRC apparently.
we have just switched to a system like this at work. doesnt effect me we have no kids.
And for all those having a pop, hope you aren't going to take advantage of ISA's and pensions to reduce your tax bill.
And for all those having a pop, hope you aren't going to take advantage of ISA's and pensions to reduce your tax bill.
I'm afriad I see a bit of a difference between a tax incentive to encourage people to provide an income for themselves in their dotage and tax incentive to buy a push bike. And I really like push bikes!
It can be even cheaper than that some schemes will give you the vat back and even employers NI contribution savings....
I'm afriad I see a bit of a difference between a pension and a push bike. And I really like push bikes!
Car parking near my old office was 8 pounds a day. If the employer pays for parking there is no requirement to pay tax on it (its specifically excluded by the HRMC, effictively making a 40% discount for higher rate earners), why not have a similar tax incentives for cycling?
http://www.hmrc.gov.uk/manuals/eimanual/eim21685.htm
And for all those having a pop, hope you aren't going to take advantage of ISA's and pensions to reduce your tax bill.
I don't have enough spare cash each month to save any in an ISA. I take advantage of a pension to provide me with an income when I'm too old to work.
I also don't earn enough to save 40% on the C2W scheme. In fact, if I'd bought my bike back after 12 months, I'd not have saved anything, and my employer pays VAT so I didn't get to save that on top.
I'm afriad I see a bit of a difference between a tax incentive to encourage people to provide an income for themselves in their dotage and tax incentive to buy a push bike. And I really like push bikes!
The tax incentive to buy a push bike is to encourage cycling to work, so there is a benefit to the state from it. Though, lots of people take the piss and buy bikes for playing on.
Dont forget the childcare vouchers! That's another £2913 pounds, and pension contributions.
If you're on 40k a year you can pretty much get yourself out of the 40% tax bracket completely 😉
My mate (an accountant) does exactly this - reduces his liability through salary sacrifice to maximise his benefits.
Perfectly legal, and I will be doing the same if/when I get a chance.
If you're on 40k a year you can pretty much get yourself out of the 40% tax bracket completely
Err - Assuming you don't have any benefits in kind then 40k per year is still about 2k below the 40% tax bracket without any salary sacrifice.
So even on incomes approaching 50k you can still just about get down to the lower level.
"If you're on 40k a year you can pretty much get yourself out of the 40% tax bracket completely"
surely once you take off your tax free allowances at tax code 0944L your under the 40% tax barrier anyway before you go fannying about trying to con the system
before you go fannying about trying to con the system
Its only conning the system if you are deliberately hiding things or lying.
Just following the rules but to the best of your advantage within the rules is not conning the system.
it was tongue in cheek .....
elaborate schemes to save money - without understanding the system first.
I meant 50k.
So even on incomes approaching 50k you can still just about get down to the lower level.
Which was my point
So, if your salary is 50K and you get your employer to reduce your 'official' salary and they pay you in other ways, how is that not "deliberately hiding things or lying"?
because there are certain things your allowed to do .
i get my salary reduced by my pension contributions - the contributions are then made into my pension by the company.
it saves them tax and NI and it saves me tax and NI
they put some of what it saves them into my pension pot for me on top of my payments.
we all (including the government) benifit from that as the government one way or another WILL get that tax out of you eventually.
every which way but -your screwed as the little man .
[i]So, if your salary is 50K and you get your employer to reduce your 'official' salary and they pay you in other ways, how is that not "deliberately hiding things or lying"? [/i]
If there was an element of 'cash in hand' or 'goods/services in leiu of monies' then I'd agree with you - but we are discussing Govt promoted schemes.
[i]but -your screwed as the little man[/i]
Ah, this bit I understand.
So, if your salary is 50K and you get your employer to reduce your 'official' salary and they pay you in other ways, how is that not "deliberately hiding things or lying"?
The would be tax evasion and illegal, you can however increase your pension contributions, and avoid paying the 40% tax, when you draw your pension you're likely to paying tax at the lower rate. Also upping your pension contribution reduces the amount of child benefit you lose if you're in the the £50k to £60k bracket.
Child care vouchers, CTW and all the other salary sacrifice schemes are perfectly legal and at your employers discretion. If your employer offers these schemes they can reduce your taxable pay even though you get non-taxable benefits in other ways.
If you don't like it, tough, vote for a politician who's going to sort the tax system properly rather than continually make it more complex to suit themseleves and which ever minority group they're trying to get votes from that week.
When you find such politician let me know and I'll vote for them as well. In the meantime I will continue to avoid paying any more tax than I have to legally whilst I can. Cracking down on the cash economy which is law breaking might be a better start than squeezing a few more pence out of higher rate tax payers who already contribute disproportionately.
op - if you are on 50-60k then you are losing 10% child benefit per 1k over 50k you are earning.
And I think you'll find you'll be stopped a tax reduction both on the Cycle to works scheme AND salary sacrifice - ie its a one time not two time hit for the tax man.
CTW is a slary sacrifice scheme.
@stumpyjon - I'm only asking cos I don't understand any of it. Not something I've ever looked into - maybe I should.
Kryton57 - that's what I said, the CTW (or pension) is salary sacrifice, so save the tax, NI AND reduce my taxable income so do not lose so much child benefit.
Hence CTW bike for 1k will cost 580 through tax saving, but I will also not lose another 10% of child benefit, which is worth £240 to me.
So, effectively a 1k bike would cost £340.
Could do the same paying into a pension, which is probably what 'll do as I have a bike off CTW a couple of years ago which IS used for commuting and still has a couple of years useful life in it.
All of these salary sacrifice schemes will save you money. If they're available to you and more importantly, useful then you should enroll on them.
Pension contributions
Childcare vouchers
CTW
[url= http://www.careerbuilder.co.uk/Article/YAH-47-Workplace-Issues-Work-your-perks-Understanding-salary-sacrifice-schemes/?lr=int_ukyahoo ]details here[/url]