Not your usual Bike to Work scheme query...

rob w

Hi,

I have been wondering something about the bike to work scheme, that maybe someone here might know the answer before I try to find someone in Revenue who could answer the question…

If somebody is earning a salary at the start of the year which is under the threshold of the higher tax bracket and buys a bike on the scheme they will make their payments and save the money on the lower rate of tax. But what happens then if their salary increases to a point above that threshold, so say that they have earned €1000 in excess of the threshold by the end of that year – which would now entitle them to the maximum saving based on the higher tax rate.

Would Revenue apply the saving retrospectively by way of a tax refund (P21 form) at the end of the year? Or would you just be stuck with what you had paid based on salary at the time of purchase?

Has anyone done this before or found themselves in that situation?

Thanks

Senecio

Our income tax is progressive, meaning that you only pay the higher tax rate on monies earned in excess of the €42,800. I doubt it will make a great deal of difference if your salary just goes past the threshold.

cython

The easiest way (not necessarily easy!) I can think of as phrasing this is that if your gross salary with the repayments on the bike removed for a calendar/tax year is still greater than the standard rate cutoff (i.e. your marginal rate is still the high rate even with the bike paid for), then your saving on the bike will be to the value of said marginal rate.

As to the mechanics of how it would be done, I'm not sure would it be by means of a P21, or would a good bookkeeping/payroll department be able to simply have it factored in over the course of the year, by deducting less from your salary at some point after you have crossed into the higher rate. Either way, your saving should be based on what you earned over the course of the calendar year, with deductions from said calendar year factored in. Obviously if your BTW payments span 2 calendar years, then this becomes more complicated, and you save on what you paid in each year based on your salary in each year.

mcgratheoin

rob w wrote: »

Would Revenue apply the saving retrospectively by way of a tax refund (P21 form) at the end of the year?

Essentially yes, but it's not really the clearest way of thinking about it. Remember, the Revenue have basically no idea that you have availed of the bike to work scheme at all. All they're concerned about is your gross salary which does not include the money deducted from your paycheck to buy a new bike - that is a non taxable benefit in kind.

As a good point to remember, your accounting/payroll department does not calculate how much net money you should be paying for the bike based on tax etc.. They merely take the €1000 (or however much) from your gross salary and then calculate your taxes on the new figure. It will be handled exactly the same way as if you'd moved from your old salary (-€1000) to a new salary (-€1000).

E.g. I am earning 20K and buy a bike on the BTW scheme. On July 1st I double my salary to 40K. In the eyes of the Revenue I have earned €29K over the course of the year (10K Jan - June, 20K July - Dec, -1K bike)and am taxed accordingly.

rob w

Great, thanks for the replies. You are confirming what I thought, just wondered if anyone else had done the same as it is kind of a strange one!