Fair Market Value - Cyclescheme.

cee

gkerr4 wrote:

also- you employer CAN claim the vat back (and will have) - they just haven't passed those savings back to you (only public service bodies can't claim VAT back - not banks!)

I don't think this is correct.....

As far as I remember, Banks are not VAT registered. They cannot claim the VAT back for expenses or purchases, but instead usually use their brute purchasing power (I know of one major UK bank who's IT budget is more than the entire budget of the Royal British Navy!) to get prices for purchasing as low as possible (to the point where they sign contracts and then change them at the last minute). Technically, the other contractee could go through the hoops, but losing a contract could mean the end of some companies!

This could be about to change, as many banks now use the language of selling products and services. If a charge of 35 pounds for going over an overdraft limit is called a service, then value has implicitly been added, and the HMRC should get their share!

It does sound a little greedy of them, but then again, what do you expect from the beancounters.

krakow

The buy-back aspect of the Bike To Work scheme always worried me, because it seemed so ambiguous as to what the amount required to purchase the bike at the end would be, so leaving it open to the company over charging, as is going on here. I guess that most people are lucky and only have to pay a token final fee, but as a pessimist, I'd be afraid of being ripped off by my employer.

stjohnswell

The company I work for charges 10% buy back. The thing is you can d the scheme every year. I've already bought into the scheme twice & might go for bike number 3 this summer.

I'd forgot about the buyback. I've already sold the first bike

RedJohn

The cycle to work scheme derives from the inland revenue rule that a company may provide a a bicycle for an employee to use, with no tax payable - provided all employees have the opportunity to have a bike if they want. The bike belongs ot the employer. The company doens't have to charge the employee anything if it doesn't want to, or it can add multiple 10% admin fees if it wants to, or anything else (you don't have to take up the offer).

The reason for the salary sacrifice part is that otherwise the company would be losing out. The size and shape of the salary sacrifice is up to the company (in agreement with the individual) really, but the point is that as far as the inland revenue are concerned the salary actually paid is all they are interested in. This is why higher rate taxpayers get more benefit, and minimum wage staff can't do it - the salary sacrifice part of your pay never gets paid to you, so if you pay tax at 40% then you don't pay 40% tax on the salary you aren't paid; if you are on the minimum wage your salary would fall below the minimum wage and you employer would be breaking the law.

The company can adjust the salary scarifce so that the individual gets the benefit of the VAT, or the employers NICs, or just the employee's tax and NIC, or it can keep paying the company pension if it wishes, or not (not the state pension as that's a function of NIC payment), or any combination of the above - this is at the company's choice.

The residual payment is not stated up front as that would make this a hire purchase agreement which would make it the employee's bike from the start and hence taxable. For similar reasons the final payment cannot be enforced, and the company is not obloiged to sell the bike to the employee. It has to reflect the "true" residual value of the bike, or the depreciation in the company's accounts would be different from the actual depreciation, which would give accountants minor headaches and cause tax problems.

The £1000 limit only comes in because to reduce the salary more means the company would have to become a licensed credit broker (of course a bank is anyway ...).

To the person who posted originally: sounds like your employers are a right wunch of bankers ... oh.

ddraver

to answer they blokes point about why have nt the govt taken VAT off bikes...its because what products get charged VAT is set by the EU now, the govt has no say (if you believe them)

It came up when those online petitions were all the range, ther was one on removing VAT on bikes that they answered as above (or something similar)

My company is still far to stingy to put the scheme in place - but then they re well known for being c**ts

yorkshireraw

to answer they blokes point about why have nt the govt taken VAT off bikes...its because what products get charged VAT is set by the EU now, the govt has no say (if you believe them)

Not true as far as I know. In Holland there is 6% VAT on all food. Here it's zero on most food items.

As for the original poster - tell them it's been nicked...

aracer

YorkshireRaw wrote:

to answer they blokes point about why have nt the govt taken VAT off bikes...its because what products get charged VAT is set by the EU now, the govt has no say (if you believe them)

Not true as far as I know. In Holland there is 6% VAT on all food. Here it's zero on most food items.

You're missing the point. A government can set the VAT rate higher than the EU approved rate, but not lower.

andrewgturnbull

lfoggy wrote:

My employer didn't charge anything at the end of the scheme and they weren't interested in having the bike back either.....probably illegal I realise but I wasn't going to argue !

Hi there.

No legal problems here unless you want to sell the bike. It still belongs to the company, they're just kind enough to let you use it.

Cheers, Andy

andy_wrx

Go to the banking ombudsman and say you want to complain about unfair bank charges ?

yorkshireraw

aracer wrote:

YorkshireRaw wrote:

to answer they blokes point about why have nt the govt taken VAT off bikes...its because what products get charged VAT is set by the EU now, the govt has no say (if you believe them)

Not true as far as I know. In Holland there is 6% VAT on all food. Here it's zero on most food items.

You're missing the point. A government can set the VAT rate higher than the EU approved rate, but not lower.

Ok, understand now, thanks for clarifying. Should be obvious they're allowed to tax us MORE if they want, but not less (not that they'd want to anyway!)

thexvw

Ok, why not reduce it to 6% that would be a start.

aracer

thexvw wrote:

Ok, why not reduce it to 6% that would be a start.

If you're referring to the VAT on bikes, because they can't as the minimum allowed rate is higher than that (15% IIRC). The 6% VAT on food is a special case, as the minimum allowed on that is 0% (as we have in the UK).

Downwardi

lfoggy wrote:

My employer didn't charge anything at the end of the scheme and they weren't interested in having the bike back either.....probably illegal I realise but I wasn't going to argue !

Have you taken up the new Scheme that they announced last week ?

I am wondering what they are going to deem as Fair Market Value but after waiting nearly 3 years I think I'll take it up.

richk

My employer asked for 5% to buy the bike. Or they'd charge me a 5% disposal charge. They are up front about this, so no possible argument.

Downwardi

RichK wrote:

My employer asked for 5% to buy the bike. Or they'd charge me a 5% disposal charge. They are up front about this, so no possible argument.

Are you NHS ?

nferrar

The Wiggle cycle to work FAQ page has some useful info (assuming it's accurate), from the sounds of it they can charge you only a nominal amount for the buy back but if the tax man objects it will get treated as a benefit in kind.
10% admin fee to set it up is ridiculous though, your company should get slaughtered for that but as I guess as others have said banks are masters of abusing admin fees

chuckcork

RichK wrote:

My employer asked for 5% to buy the bike. Or they'd charge me a 5% disposal charge. They are up front about this, so no possible argument.

If the bike belongs to them, and not to you, hence the 5% charge to "buy" the bike from them, then how can they possibly charge you for disposing of their property?

If is that expensive to dispose of it, offer to do it for them (on a commercial basis you understand), for say 5% of the bike value....

Simon Notley

I think the problem here seems to be that legally you have the right to buy the bike for a 'fair market value' but in order to make the scheme worthwhile for the employee, this needs to be 20% at the very most of the original value (otherwise it wipes out your original tax savings). it seems form the posts above, most employers are happy with 5 or 10%

IMO, the problem with this is that it would never stand up to scutiny. If you sold your one year old £1000 bike on ebay, how much would you expect to get for it? Certainly a hell of a lot more than £50-£100, I'm guessing you'd probably hope for at least £700. Therefore a fair market price would seem more like 70%... of course, this would mean the scheme was totally redundant as it would cost you more to get a bike through the scheme than just to buy it yourself.

The upshot of all this as I see it is that the company can easily pressure you into paying an extra admin fee or some such because the whole transaction has already slipped outside the letter of the law...

Maybe I've misinterpreted the term 'fair market value' but IMO when you have a contract, it should say what it means rather than the "oh it has to say that to get round tax laws, but trust us we'll give you the bike for 10% nudge nudge wink wink" approach.

There are also clauses stating that more than 50% of the bikes use must be commuting... I can't imagine this is the case for most of us on here either...

Sorry for the rant... I was just hoping to be able to persuade my employer to run a scheme, but having looked at the small print it just seems to offer little saving to employee or employer and be based around these daft rules that just leave the employee at risk.

andy_wrx

Fair market value might be what you'd get if it went to a lost property or office liquidation auction, rather than eBay, but yes.


What might be worth remembering is what was the original point of the sceme though, why did the government bring it in ?
With the intention of getting people who previously didn't cycle to work to start cycling to work, to reduce traffic congestion and to reduce carbon emissions by these people using a bike rather than a car, to improve the health of couchpotatoes by getting them to exercise.
Not so that people who already cycled could buy another bike, a carbon or titanium road-rocket for sportives or TT's at the weekend, and only pay 50% of the price...

DA_BURB

Simon Notley wrote:

I think the problem here seems to be that legally you have the right to buy the bike for a 'fair market value' but in order to make the scheme worthwhile for the employee, this needs to be 20% at the very most of the original value (otherwise it wipes out your original tax savings). it seems form the posts above, most employers are happy with 5 or 10%

IMO, the problem with this is that it would never stand up to scutiny. If you sold your one year old £1000 bike on ebay, how much would you expect to get for it? Certainly a hell of a lot more than £50-£100, I'm guessing you'd probably hope for at least £700. Therefore a fair market price would seem more like 70%... of course, this would mean the scheme was totally redundant as it would cost you more to get a bike through the scheme than just to buy it yourself.

At the risk of repeating posts in this and other strings, there can be no legal right to purchase the bike at the outset as that would then be a hire-purchase arrangement and not qualifyfor the tax breaks, hence "the employer may offer to sell youthe bike at FMV attthe end of the hire period" and, in practice, will, although my employer has opted to tranfer ownership of the bikes to the scheme provider (Cyclescheme), who then "may offfer to sell it to me for no more than 5% of the original price.

The Fair Market Value is calculated in accordance with Revenue guidance and the 5% is justified that, in accordance with the scheme rules, the bike has been used for commuting on a near daily basis for 12 months - if you advertised a £1,000 bike on ebay and were honest about a daily usage on crap roads for a year, you probably wouldnt get £700?

Simon Notley

The fact that the company doesn't even have to sell you the bike make it even worse!

If the company decide not to offer it to you, they will have just acquired a bike at no cost to themselves (as it was paid for by the employee and the treasury through tax breaks) which they could then just sell on at actual market value on ebay or wherever and be perfectly within the letter of the law... surely not???

*EDIT of course, this is in theory the same as what happens if they DO sell it to you. The company buy the biike with the employees wages and then sell it back to them. It is only the mutual understanding that they will sell it as a massively undervalued price that makes this seem fairer*

I appreciate the intent of the scheme, but it doesn't seem to guarantee the employees a good deal and leaves them open to being ripped off by unscrupulous employers.

I take the point about market value, maybe 70% is a little high, but I'd say maybe 50% would be reasonable, maybe less if the bike was really knackered... but still it has to be less than your tax rate to make it worthwhile.

cycletowork

Companies should charge the employee £1 at the end of the scheme to satisfy the rules.

HMRC never have and never will raise a case that fair market value is more.

CTW

Downwardi

Simon Notley wrote:

The fact that the company doesn't even have to sell you the bike make it even worse!

If the company decide not to offer it to you, they will have just acquired a bike at no cost to themselves (as it was paid for by the employee and the treasury through tax breaks) which they could then just sell on at actual market value on ebay or wherever and be perfectly within the letter of the law... surely not???

*EDIT of course, this is in theory the same as what happens if they DO sell it to you. The company buy the biike with the employees wages and then sell it back to them. It is only the mutual understanding that they will sell it as a massively undervalued price that makes this seem fairer*

I appreciate the intent of the scheme, but it doesn't seem to guarantee the employees a good deal and leaves them open to being ripped off by unscrupulous employers.

I take the point about market value, maybe 70% is a little high, but I'd say maybe 50% would be reasonable, maybe less if the bike was really knackered... but still it has to be less than your tax rate to make it worthwhile.

If the company did however sell off the bike instead of offering it to the person the scheme would soon collapse.

For the NHS in particular they want Staff out of cars and thus off their Car parks.

It's £2.20 an Hour for Patients to park at the Hospital or they receive about 4p per hour (It's £6 a month So say 150 hours a month parking) from Staff parking.

With all the PFI's now and the fact a lot of NHS carparking is managed by a Private company in it for the Profits (£3m made in 2006 from ours) there is little benefit to them in having thousands of staff taking up Car parking spaces.

All this Environmental and Health benefits spiel is rubbish.

I