The Ride 2 Work Scheme.

muddly

Hi

My employer started a Ride 2 Work scheme last year. When we signed up to the scheme, we were told that once the scheme came to an end, this months salary has the last deduction, that the ownership of the bike would be transfered for a "nominal fee". We all took the meaning of "nominal" to be a small amount, as is the general understanding of the term.

Inquires with other other other commuters, using other schemes, generally indicated that the transfer of ownership was for a very small fee, often called a nominal fee. Therefore when we received letters from our employer,we were surprised to see that they are offering to transfer the ownership of the bike for a "fair market value, plus VAT". When questioned, we have been told that this is the direction of the Inland Revenue.

In most of the cases I know about, the combination of monthly hire cost, fair market value and VAT works out more expensive than buying the bike directly and negotiating a discount.

Do any of you have any experience or knowledge of the R2W scheme and the issue of transfer of ownership.

secretsam

Don't have experience of R2W but chatting to condor about this, most employers simply charge a nominal amount eg 5-10% for the bike; depends on their accounting policies. The inland revenue would find it hard to identify the second hand value of a decent year old bike, I think - and frankly, they won't bother, bigger fish to fry and all that...

sonnyb

I bought a bike under this scheme and no mention was made of a 'transfer fee'. As far as I am concerned, after the last monthly payment, in September the bike is all mine.

RufusA

Under Section 206 (2) of Income Tax (Earnings and Pensions) Act 2003 (ITEPA) there will be a taxable charge unless ownership of the item transfers to the employee at market value.

It may be that the letter is just covering their backs for HMRC purposes, and when asked they will quote an employee friendly "market value" of 5% of original purchase price.

As I have frequently said on this forum if employers choose to follow the letter of the law, then a 12 month cycle to work scheme will cost the employee more than buying outright as you end up paying for the same bike twice. The Government have stupidly shoe horned a 3 years Home Computer scheme in to a 1 year Bicycle scheme and assumed that resell value will be similar.

Anyone who suggests a 12 month old bike is only worth 5% of it's original purchase price will have a difficult job with the inland revenue (though a 3YO computer could be worth just 5%).

However 99.9% of employers IMHO use ficticious fair market values and based on past experience the HMRC knowingly turn a blind eye!

My advice is to get a quote from the employer. If they are going to fleece you, then you still have the option of handing the bike back and walking away!

Rufus.

sonnyb

Interesting, I will have to find out but I would be surprised if any of the people who took up the schemee will tolerate any sort of loss on their part. At the time it was thoroughly researched and we were all assured that the bike worked out significantly cheaper under the scheme. It was all very open, with the numbers for all to see and how it was worked out etc. There will be a lot of angry people if it was not as advertised!

muddly

RUFUSA, thank you for a very informative reply. I think my employer is sticking to the letter of the law! They have said that when I go to Evan's Cycles for my quote, that I should be okay, but this does not appear to be the case from the experience of others. Thanks again.

attica

If my employer goes down this route, I think I'd be very tempted to give them the bike back in pieces, I'd have to dismantle it a fair bit to get all the components I've fitted to it back, it's quite a nice image handing them back a box full of components!

What is any company going to do with an old bike anyway? It'll just sit in a corner and fester. You've got them over a barrel, make them an offer!

benvickery

My employer asks for another months payment when transferring ownership of the bike. I've had my bike a couple of months but I haven't started paying for it yet, I want to do it again next year, so I hope it gets sorted out soon.

The company are not running the programme to make money, they are doing it for the benefit of the employees. The 'market value payment' should reflect this.

niblue

My employer agreed a fair market value of 5% up-front.

Massimo

A friend in the Met sent me this, it may be of use... I think most of us on the scheme would come under category 3

Dear all,

I have been watching the HR Forum and then was copied in to some of the NSY user group emails, hence getting your details. I have managed to obtain details of the criteria, etc that Evans will be using to value your R2W pedal cycle. Hopefully, this will allay fears, apart from those of you who have not complied with the scheme and have a sparkling new bike still. Please feel free to pass this on to other R2W users, so that both they and the Evans staff are fully informed about the criteria when valuing your bikes. My valuation is what I was expecting as a nominal fee, so hope this helps. I haven't copied the whole Evans document but the relevant sections, as I don't want to compromise anybody.

Evans are not carrying out these valuations like an insurance valuation, as the bike isn't being looked at to see what it would cost to replace. However, they are, quite rightly judging each bike on its merits and not a "job lot".

None of the below applies to Bromptons as they will be dealt with separately. The document says "Brompton bikes are the only identifiable product that will consistently fetch more. Uniquely, Brompton do not change their range annually, so used ones have a tendency to appear more "current" than other manufacturers' products.............a Brompton can be expected to fetch 10% more than other models. This takes into account that it is unlikely to be outmoded, so a Brompton in excellent condition could be priced to sell at 25% of its original price"

Category 1 - SHOWROOM CONDITION

ie just wheeled out of the showroom and never been used - this has already lost it's manufacturers warranties, as these only apply to the original owner plus it won't be of the spec that the buyer would have had the choice if still in the showroom. The document says "it has generally been the policy when pricing second hand bikes for sale to start at 50% of the original price for a showroom condition machine, descending from there to account for things like wear, demand and how long it has been since the bike was a current model."

Category 2 - EXCELLENT CONDITION

You have had the bike for the last year but only ridden it a couple of times.

The document says "15% of the original price is a likely outcome. Once could offer it up for more but reasonably expect to accept this kind of amount. If the bike is an absolute current model ie. same colour and specification as its unused shop floor equivalent, it could get a bit more, probably 17%"

Category 3 - GOOD CONDITION

A typical commuters bike that is one year old, been used regularly, has been excellently maintained and serviced and possibly parts exchanged, been cleaned and lubricated throughout useage.

The document says "commuter bikes are more likely to be left outside when they are not ridden, and users rarely have the same opportunities for after-ride care as the weekend mountain bike receives. A bike commuted on for a year in good condition can be expected to fetch around 10% of the original shop price. Using the same criteria described about, another 2% may be obtainable if the bike is still the current model"

Category 4 - FAIR CONDITION

Bikes that have received less attention than those described as good. These are unlikely to be clean, tyres may be worn and under-inflated, recalibration is required of the components, ends of the pedals are scuffed, but still recognisable as a recent acquisition after one year.

The document says "Historically, it has always been extremely difficult to sell such a bike..............we believe that it is near to impossible to put a price on these bikes, but recognise that sometimes it has to be done. 6% of the original would be likely to receive attention and possibly a sale"

Category 5 - POOR CONDITION

This is a bike that despite being only a year old, will demonstrate all the signs of being uncared for. The chain and moving parts will be coated in a thick, black muck that accumulates over a long period of time. Tyres will be worn and under-inflated, scrapes and scratches to the paintwork, rust in evidence.

The document says "this bike is effectively worth nothing at all, in that it will likely be impossible to find a buyer.........5% of the original price is a reasonable expectation with an additional 2% mentioned earlier if it is a contemporary model"

Bikes are expected to lose approx 2% in value per year .

"Pricing a second hand bicycle is the most inexact of inexact sciences. Nevertheless, by applying some rules and common sense assumptions about both the bike and its likely buyer, we can confidently set some guidelines."

SO, I do hope that this ends peoples anxieties about "Fair market value" which the Government literature on this scheme have always detailed. Please do not give HR a hard time as I am sure you will work out that the above percentages are pretty nominal in reality and even more important don't give the staff in Evans a hard time. They are just doing their job, work with them.

Happy cycling.

Shadowduck

niblue wrote:

My employer agreed a fair market value of 5% up-front.

When I asked about agreeing a fair market value up-front, I was told that anything in writing would turn the whole thing into a hire purchase scheme and negate the tax breaks. Unfortunately, I don't trust the accounting trolls at my firm to do the decent thing at the end of the year so I ended up buying my new bike without benefit of C2W.

As it turned out, since our C2W is run through Evans and they aren't exactly the cheapest, I was able to find a similar bike for about the same price as I would have paid through C2W anyway! Amazing what you can get if you shop around...

Belv

Those criteria discriminate against the consciencious owner who cleans, maintains and has their bicycle serviced - you could be penalised by upto 35% by presenting a 'perfect' example! "Fair market value" should have a fixed definition.

Massimo

I disagree, if you're going to use a ride to work scheme, then you use the bike to ride to work (ie at least 3 times a week for 12 months). As I said, most of us will be in category 3. If you've purchased a bike through the scheme and not used it as it should then you should pay the penalty...

alfablue

niblue wrote:

My employer agreed a fair market value of 5% up-front.

This is good, but it is also prohibited under the scheme, any such prior agreement makes it a hire purchase agreement (not subject to the tax concession) rather than purely a hire agreement.

Whoops, Shadowduck already said this.

spen666

Massimo wrote:

...

Bikes are expected to lose approx 2% in value per year .

...

How many people will buy my bike off me for 985 of what i paid last year?

killiekosmos

My employer is just about to set up a cycle to work scheme. A few years age we did the home computing intiative and many of us bot IT kit. At the time we were told that we need to buy it at the end of the 3 years at a fair price but the scheme administrators estimated this would be likely to be 5% of purchase price.

I see no reason why bikes will be different (exceptI want to pay it up over less than 3 years. As the employer owns the bike and leases it to employee why would they want lots of secondhand bikes returned?

If at the end of the term it needs to be valued I'll take it for a ride down the muddiest trail I can so it looks really shoddy before they value it - but I doubt if this will happen.

At present everyone wants to be (or pretend to be) 'green' so no one in government (HMRC) will try to scupper the scheme by inflating values of bikes.

daniel_b

Muddly, I am hoping my forthcoming employer will be running this scheme, and am very interested to hear what the outcome of your situation is.

My current employer ran the IT 3 year plan a while back, but I opted not to go for it.

I too had heard the 5% of original value, bandied about as the minimal purchase price at the end of the year, so I imagine on a £1000 bike, you would be assuming you would need to pay around £50, and I guess your monthly payments (12) would be somewhere in the region of £50/£60 anyway?

Are you able to tell us what the figure is they are expecting you to pay, and what the cost/value of the bike was?

If my new employer does run the scheme, I am hoping to get a tasty looking Planet X.

Cheers

Dan

bear_bearson

Crap, I've just paid off my Brompton and want to sell it as I did not use it as much as anticipated, we'll have to wait and see what my employer wants for it.

Hopefully I will not get shafted.

gk141054

I am currently looking to take part in the scheme too and found this on our provider's website:

What happens when I have finished the payments?

You may be able to start a new scheme with a more up to date bicycle, if your employer wishes to implement a new scheme.

• The bicycle and equipment can be returned or collected for a small collection fee.
• Your employer may have the opportunity to sell the bicycle and equipment at the end of the scheme at fair market value. Currently fair market value is estimated to be a nominal sum not exceeding the amount of one month’s salary sacrifice.

GK

cycletowork

Any decent employer should transfer the title of the bike at the end of the period free of charge. There is no HMRC requirement for the employee to make a payment.

If the scheme is administered properly the employer makes savings under the scheme from lower Employer National Insurance contributions. The administration of the scheme could not be more simple and a company cannot justify passing any admin charges onto the employee any more than they can charge you when they pay you overtime a bonus or adjust your salary.

Remember they (your employer) already make money from the scheme. Don't accept they can make more at your expense.

CTW

bear_bearson

cycletowork wrote:

Any decent employer should transfer the title of the bike at the end of the period free of charge. There is no HMRC requirement for the employee to make a payment.

If the scheme is administered properly the employer makes savings under the scheme from lower Employer National Insurance contributions. The administration of the scheme could not be more simple and a company cannot justify passing any admin charges onto the employee any more than they can charge you when they pay you overtime a bonus or adjust your salary.

Remember they (your employer) already make money from the scheme. Don't accept they can make more at your expense.

CTW

Is this an "Official" response?

cycletowork

bear_bearson wrote:

cycletowork wrote:

Any decent employer should transfer the title of the bike at the end of the period free of charge. There is no HMRC requirement for the employee to make a payment.

If the scheme is administered properly the employer makes savings under the scheme from lower Employer National Insurance contributions. The administration of the scheme could not be more simple and a company cannot justify passing any admin charges onto the employee any more than they can charge you when they pay you overtime a bonus or adjust your salary.

Remember they (your employer) already make money from the scheme. Don't accept they can make more at your expense.

CTW

Is this an "Official" response?

Its as good as.

CTW

graham_g

I didn't get charged a penny at the end of the 12 months. We were assured that if they could get away without charging a penny then they would, it was also written into our contract documents that any final payment would be no more than 3% of the original voucher value as a back up.

saveswalking

I checked out our works cycle2work 'scheme' and was told you have to go through Halfords and the max value is £500. Now the bike I've got my eye on is not available in Halfords and will be about £600 +. I'm sure I read/heard that Halfords can get the bike for you via them and I 'd happily pay the extra on top of the £500. Is this true ... in practice or are there problems?

sw

alfablue

There can be problems with "top ups" by employees, because of the then ambiguos nature of what you own and what you are hiring. If you can negotiate with Halfords to do it then it should work, but many scheme providers have stopped this.

RufusA

cycletowork wrote:

Any decent employer should transfer the title of the bike at the end of the period free of charge. There is no HMRC requirement for the employee to make a payment.

Hi Alan,

I know you've previously said you are from an accountancy background how does the above statement tie up with the IT&FA:

Under the Income Tax and Finace Act 2003 (and subsequent ammendments contained in the 2005 Finance Act)

http://www.opsi.gov.uk/acts/acts2003/uk ... pb3-l1g203

para 203
(1) The cash equivalent of an employment-related benefit is to be treated as earnings from the employment for the tax year in which it is provided.
(2) The cash equivalent of an employment-related benefit is the cost of the benefit less any part of that cost made good by the employee to the persons providing the benefit

para 206
Cost of the benefit: transfer of used or depreciated asset
(2) The cost of the benefit is the market value of the asset at the time of the transfer.

My reading of this is you will be charged tax on the value of the bicycle in the tax year of the transfer unless you make good to the employer the value of the bicycle.

So either:

a) You pay the employer the current value of the bicycle.
or
b) You pay the HMRC tax on the current value of the bicycle (losing a chunk of any tax savings).

I have yet to see any guidence on the HMRC site to indicate that the market value of a bicycle after 12 months can be treated as 5% and when I contacted my local tax office on the subject got read out a long statement about the general valuation of assets including use of expert opinion, small ads etc. None of which impled to me 5% or less would be accepted without question by my tax office.

Rufus.

cycletowork

RufusA wrote:

cycletowork wrote:

Any decent employer should transfer the title of the bike at the end of the period free of charge. There is no HMRC requirement for the employee to make a payment.

Hi Alan,

I know you've previously said you are from an accountancy background how does the above statement tie up with the IT&FA:

Under the Income Tax and Finace Act 2003 (and subsequent ammendments contained in the 2005 Finance Act)

http://www.opsi.gov.uk/acts/acts2003/uk ... pb3-l1g203

para 203
(1) The cash equivalent of an employment-related benefit is to be treated as earnings from the employment for the tax year in which it is provided.
(2) The cash equivalent of an employment-related benefit is the cost of the benefit less any part of that cost made good by the employee to the persons providing the benefit

para 206
Cost of the benefit: transfer of used or depreciated asset
(2) The cost of the benefit is the market value of the asset at the time of the transfer.

My reading of this is you will be charged tax on the value of the bicycle in the tax year of the transfer unless you make good to the employer the value of the bicycle.

So either:

a) You pay the employer the current value of the bicycle.
or
b) You pay the HMRC tax on the current value of the bicycle (losing a chunk of any tax savings).

I have yet to see any guidence on the HMRC site to indicate that the market value of a bicycle after 12 months can be treated as 5% and when I contacted my local tax office on the subject got read out a long statement about the general valuation of assets including use of expert opinion, small ads etc. None of which impled to me 5% or less would be accepted without question by my tax office.

Rufus.

Hi Rufus

Again I despair about how people look for problems which do not exist.
If you want to pay your employer or declare a benefit in kind thats up to you but please don't scare people into thinking they are breaking any tax law or doing anything wrong because they are not.
I doubt very much HMRC have ever raised an assessment on the used value despite what they may have told you and would be very surprised if they ever did. Its a government scheme to promote cycling (to work) for gods sake.
If they did I can fight that case and win.

cheers

RufusA

cycletowork wrote:

Hi Rufus

Again I despair about how people look for problems which do not exist.
If you want to pay your employer or declare a benefit in kind thats up to you but please don't scare people into thinking they are breaking any tax law or doing anything wrong because they are not.

So you advocate that people evade tax on the basis that you'll probably get away with it, and that to date people haven't been challenged, and that green travel is a scheme that has been introduced by another Government department. I'd love to see how this arguement pans out in front of the Special Commisioners.

In what way do you feel that not declaring and paying tax due under the IT&FA is not breaking any tax law?

Don't get me wrong, I fully support people getting tax savings under the Cycle to Work scheme, and would fully encourage everyone who gets a chance to do it. I would say that in all likelihood 100% of all people taking over ownership of a bicycle at the end of a rental agreement and not paying market value won't have any additional tax to pay.

A lot of drivers will drive at 80mph on a Motorway, and the police have no interest in prosecuting them. However it would be wrong to say it was legal to drive at 80mph and I shouldn't scare people by telling them they may get fined if they travel at that speed.

I also dispair at:

a) Companies that are making money on the back of "administering" a simple scheme that doesn't require administering.
b) Companies that deliberately mis-inform people about the risks and possible tax implications of the schem
c) The Government for bodging the scheme so badly in the first place that something that should have been simple and plain has doubt and risks attached to it.

To my mind "should be okay" is not a good basis for gambling up to £1000 on renting a bike for a year.

As both an employer and an employee I see both sides of the coin. In the end my company is loaning bicycles and equipment up to £1000 in value to all employees without ANY salary sacrifice and without any intention to transfer ownership until either the company folds, or the employee decides to leave the company. In the latter case paying a genuine market value for a bicycle they've had free use of isn't IMHO too much of a hardship.

Rufus.

cycletowork

I don't know what business you are in Rufus but you clearly have no understanding whatsoever of tax or tax law and I would advise anyone to ignore your ramblings.

You claim that I "advocate people evade tax" and continue how you would love to so it "pan out" in front of the Special Commissioners. You will never see this as inspectors do not take cases to commissioners unless they have at least an 80% chance of success. In this case they would have none.

There is no tax evasion. You claim there is a benefit in kind. The employee has repaid the employer the full cost of the bike as rental payments so there is no benefit. You propose that on top of paying the full cost of the bike he has to pax tax on a benefit. What benefit?

You accuse the government of bodging the scheme. The scheme is great. The problem is people like you know know nothing about tax refuse to take good expert advice from those who do.

You quote "should be okay" as not a good basis. I never used any of those words for the record. I said I would win any case.

Lastly you say your company is loaning bikes without any salary sacfiice? So these bikes are not even in the scheme???? What are you on about?

cheers

Shadowduck

This is what I love about the internet. There's nothing that can't be turned into an argument. :roll:

saveswalking

Shadowduck wrote:

This is what I love about the internet. There's nothing that can't be turned into an argument. :roll:

Rubbish!

sw