Cycle to Work - upcoming changes to the benefit

Belv

bails87 wrote:

Belv
Do the maths.

If something costs £100 inc VAT. Then the VAT isnt £17.50.

£85 + 17.5% of £85 = £100

17.5% of £85 = £15

So on something costing £100 including VAT, the VAT is actually 15% of the total price, the 17.5% is added on to the pre-VAT price, it's not taken off the final price.

Good point, i didn't read your post properly (and i buy most of my bikes at trade price so i am used to having to add on the VAT).

Bikerbaboon

well im gonig to bow out on this one.
I can now see that its fine to bend rules to breaking to get your self a toy to play with on the weekends as long as you can tell your self that it was a much needed tax credit to help you comute to work by bike.
Its sad to see that every one is just out to get as much as they can for them selves and dam the rest of it.

bails87

Thats the way the world works

I see some of your points, but at the end of the day, if the government says "Here's £1000 for a bike to get to work on", I don't think it matters if I buy a mountain bike, and ride it to work, rather than buying a road bike and riding to work on that.

As it happens, if I was offered the scheme, I'd buy a road bike!

Father Faff

I'm not so sure that is what they mean. I think that as long as you had a decent depreciation policy that reflects a reasonable market value at the end of each period that would do though obviously if HMRC could find that all 3 year old Orange 5s sold on Flea Bay were actually worth more than say £100 then you might be in a spot of bother. However I don't think HMRC have the resources to go around checking the condition of bikes that are sold to employees and valuing them just as they don't have the resources to check that people use their bikes "mainly" to commute to work. I would say that the Halfords figure of selling all bikes on at 3% of their new value after 18 (or is it 12) months is simply ludicrous and no wonder HMRC are not happy about that kind of set up.

So lets take a £1175 bike. Company reclaims £175 VAT and rest is loaned via salary sacrifice over 3 years. You get tax relief at 30% or so so save another £300. At end of 3 years you are offered bike for £37 + VAT = £44. Total saving on £1175 bike is £431 which is 37%. If you are a higher rate taxpayer the saving could be more like £630 or 53%.

Kanya

Jesus.....

I am positive that if this were "breaking rules and laws" etc, then firms such as Ernst & Young wouldn't be involved, nor would JP Morgan.

But then...what would they know?

Yes, it's a tax break that can't be quantified by mileage/useage, hence why it will no doubt be pulled by the government in due course. They have done this to bus travel passes this year already. Employees would get a bus pass for unlimited travel, use it to get to work Mon-Friday...but then also use it after work/weekends. Again, untrackable by the gov, who deemed that people shouldnt get tax free travel in their free time.

Hence why bike schemes will change dramatically over the next few years and tighten considerably. The main reason it's not been pulled is the "green" element. The gov publicly made the statement to get everyone on bikes and out of cars.

Again, if you think this is breaking the law or bending rules...the HMRC made em at the end of the day. It's human nature to save cash.

Kanya

I've also yet to hear of an employee getting their bike evaluated by the HMRC.

Bikerbaboon

bails87 wrote:

Thats the way the world works

but is it the way it should work?

Father Faff

And Baboon I've already said that I don't think this is the best way of pushing the Government's policy of encouraging cycling and does make a lot of people feel uncomfortable if they take advantage of it. However at the moment it is there.......

Personally I would prefer a much more honest approach from the Government to this and a decent integrated transport policy that encourages cycling with plenty of investment in dedicated cycling routes for commuters and road calming measures.

I am sure that after the Election, if not in next month's budget, there may be an abandonment of this scheme.

Kanya

^ What he said.

If you want a bike and your work offer it, go for it as soon as poss. This benefit ain't gonna be around for too much longer the way the current Flexible Benefit market is shifting as HMRC is tightening up on everything.

bannedbiker

Bikerbaboon wrote:

bails87 wrote:

Thats the way the world works

but is it the way it should work?

Dude, how many things go on in the world that shouldn't happen?!

If the world was perfect we'd all get bored!

cee

Father Faff wrote:

though obviously if HMRC could find that all 3 year old Orange 5s sold on Flea Bay were actually worth more than say £100 then you might be in a spot of bother. .

I disagree...

actual value and what people are willing to pay are two different things.

Otherwise when you make a claim on your house insuarnce for a 10 year old TV for example, you get an equivalent level new tv...not the £1 that the old tv is actually valued at.

Father Faff

To my mind NMV (Net Market Value) as specified in the HMRC rules could be defined as what people are willing to pay on the open market - which is pretty much what people pay on E Bay I would say?

And I have to agree with Mr Baboon that Salary Sacrifice Schemes do bring the tax system into disrepute and really there ought to be a better way of doing things. It is also true that these schemes benefit higher rate taxpayers more than basic rate taxpayers which I don't think is right either (and I say that as a higher rate taxpayer nowadays).

The whole tax system could do with a complete overhaul so that everyone who can afford it pays a decent amount of tax to support those less fortunate than ourselves. However if you do save some money on the Bike to Work scheme and feel guilty you can always donate to a worthwile charity......

bails87

cee
I think you're talking about two seperate things there tbh.

E.g. if good condition, 1 year old Boardman Pros are selling for £500, then the company should expect a payment of £500 for an employee to be able to transfer ownership of his good condition 1 year old boardman pro. Even though, to replace that bike with a new one would cost £1000

cee

nope....

i can buy a lollypop stick from you for £1000.

that does not mean that it is fair market value.

bails87

cee wrote:

nope....

i can buy a lollypop stick from you for £1000.

that does not mean that it is fair market value.

I don't know if I'm missing something here.

I think Father Faff was saying that you can't set an arbritary percentage as the value of the bike, because it won't reflect the market value. so if you always say that the bike, after a year, can be yours for 5% of the price at the start, then you can buy a well looked after £1000 RRP bike for £50. Then sell it on ebay the next day for £400. In that case you could clearly argue that the fair market value was £400, not the £50.

Oh, an I accept PayPal, send me the money today and I'll give you two, yes TWO, lollypop sticks for £950

Father Faff

Yes that's what I mean.

And I think EBay is a fairly good indication of what things are worth.

And my experience of HMRC is that they will accept a reasonable valuation based on known facts such as print-outs from EBay, Parkers Guides for cars, estimates from LBSs, etc.

If you are reasonable with them they will normally be reasonable with you, however if you start taking the pee they will be happy to use all the considerable powers at their disposal......

cee

ebay is not fair market value at all.

it is possible to pay more for a second hand product than the product costs brand new, depending on the bidding...

it is an auction, which is won by the person who is willing to pay the most....

It is not the same as fair market value.

Using your own logic....

A company buys a laptop. After 3 years, it is effectively worth nothing as it has depreciated in value 3 years in a row.

So the company can rightly write that asset off to depreciation.

At the same time, an ebay ad for the same type of laptop gets a lot of interest....and it eventually goes for £300.

That does not mean that the residual value of that companies asset (laptop) is £300.

know what i mean....

Thewaylander

To be honest, with people moaning about fraud and so on, i have to admit im not bothered if a guy buys a bike through the sceme and never uses it to go to work,

At the moment We pay tax on most goods we buy (VAT), huge tax on fuels, incomes tax and so on, and trust me ( i do some personal tax with work) they do you hard.

And i sit back and watch that money thrown around very badly. people who have never worked queezing out kids to have a new home given them with all mod cons(not saying they don't need help but there are levels to be given), I who work pay in to the systems and so on get my health and all but its help and distribution is terrble woeful and wasteful.

So in my veiw We who work hard sometiems deserve a pat ont he back and if the goverment can provide a benefit like this awsome take advantage. sounds a bit hard but hey

Father Faff

I know exactly what you mean Cee, you can get people who pay too much on EBay, equally you get a lot of bargains. Without checking the legislation I think the regs say market value not net book value, though if you have a decent depreciation policy then the two should be quite similar!

If I were you I'd show HMRC the ads that were bargains!

bails87

cee wrote:

ebay is not fair market value at all.

it is possible to pay more for a second hand product than the product costs brand new, depending on the bidding...

it is an auction, which is won by the person who is willing to pay the most....

But which one is more of a market? A retailer writing a price on a shelf and saying £100 or nothing. Or a situation where customers compete based on how much they value that product and how many are available. An auction is an excellent way of measuring consumer demand for products.

In your example, are you talking about a new laptop, or a 3 year old one? you can't just say "it's worth nothing and all the bidders are wrong". In that situation, the market has decided that the item is worth £300. If the company laptop is identical to the ebay one, then they could put their laptop on ebay and get £300 for it.

All a moot point anyway, I'm not sure how we got onto the validity of ebay as a free market. :?

cee

bails87 wrote:

cee wrote:

ebay is not fair market value at all.

it is possible to pay more for a second hand product than the product costs brand new, depending on the bidding...

it is an auction, which is won by the person who is willing to pay the most....

But which one is more of a market? A retailer writing a price on a shelf and saying £100 or nothing. Or a situation where customers compete based on how much they value that product and how many are available. An auction is an excellent way of measuring consumer demand for products.

In your example, are you talking about a new laptop, or a 3 year old one? you can't just say "it's worth nothing and all the bidders are wrong". In that situation, the market has decided that the item is worth £300. If the company laptop is identical to the ebay one, then they could put their laptop on ebay and get £300 for it.

All a moot point anyway, I'm not sure how we got onto the validity of ebay as a free market. :?

Bold bit 1
Still doesn't mean that is what its real value is though...as i said...lollypop sticks could sell for £1000!

Bold bit 2.
Quite...if you have a bike on the C2W...you are ultimately at the mercy of how your company values its assets.

I think that the majority of companies and the HMRC have bent the actual letter of tax law to get people cycling and I believe that changes are necessary in the sceme.

Examples of people topping up...
not using it for 50% of the time etc etc etc.

Its all been hit with a big hammer and forced into a legal framework....

I expect it to either canish completey or change significanlty in the coming year.

blinddrew

cee wrote:

ebay is not fair market value at all.

it is possible to pay more for a second hand product than the product costs brand new, depending on the bidding...

it is an auction, which is won by the person who is willing to pay the most....

Which is surely, overall the best measure of value? What people are willing, on average, to pay? Afterall, this way it covers appreciation as well as depreciation?
Maybe knock a percent off to reflect that the winner has gone over what most people were willing to pay, but basically, find the item, find the average closing price of that item in that condition, and that, essentially, is what the market has valued that item at. Which has surely got to be a more accurate measure than an individual assessment?

NB the above assumes a suitably large sample size.

alfablue

For everyone's info re: FMV I am reproducing this from a previous thread, seems pretty authoritative:

Massimo wrote:

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.

Father Faff

To quote from the above "the above percentages are pretty nominal in reality".

I would say so and I think HMRC might take issue with them!

alfablue

Father Faff wrote:

To quote from the above "the above percentages are pretty nominal in reality".

I would say so and I think HMRC might take issue with them!

They might take issue, but who better to assess value of bikes, HMRC or a leading major bike retailer that sells in the market in question? If I want to sell my house my first thought is not :idea: HMRC will know the value

I think there is a massive amount of scaremongering on her - you guys sound like you actually want to cause a problem with HMRC :roll: Maybe life is too boring . . .

bails87

Something to think about, when the bike is being valued, does that take account of parts that have been replaced? Becasue that would skew the value up quite considerably, but they weren't bought 'tax free'. So if you put the punctured tubes, rusty chain, worn out chainrings back on, then that's the bits that the company 'owns', you've already paid out of your own pocket for the new parts.

Although you can get the bike into Cat 4 by letting the tyres down and tweaking the indexing, which you can fix in 10 minutes.

Father Faff

alfablue wrote:

Father Faff wrote:

To quote from the above "the above percentages are pretty nominal in reality".

I would say so and I think HMRC might take issue with them!

They might take issue, but who better to assess value of bikes, HMRC or a leading major bike retailer that sells in the market in question? If I want to sell my house my first thought is not :idea: HMRC will know the value

I think there is a massive amount of scaremongering on her - you guys sound like you actually want to cause a problem with HMRC :roll: Maybe life is too boring . . .

Guess who is the official arbiter of house price values in the UK - the Valuation Office - and I think you will find they are part of HMRC?

Mind you houses are worth a little more than old bicycles and like you I would have thought that HMRC have much better things to do than argue about the price of a used bicycle - now that would be wasting taxpayers money....!

bails87

Father Faff
True!

I think we've covered a lot of stuff here, main points are that if they start really checking if you're using the bike for commuting, then you'll be fine as long as you are commuting on it.
However, a careful cyclist who looks after the bike may get stung with a bigger than expected final payment at the end of the loan period. Which could result in you paying more than the value of the bike.

In practice it may just be gesturing from the HMRC and maybe nothing will change at all, until the scheme is scrapped.

Although the 'Call-Me-Dave' Tories like bikes don't they? So maybe it'll live on. I hope it does, I want a Boardman Carbon road bike!

alfablue

You only have to be using it for the majority of the time for commuting, 1 minute per year would be fine providing other use was less. It isn't ever going to be feasible to monitor this as it would require "spies" to be observing cyclists 24/7 - even in the most paranoid of us, surely we cannot see that happening.

Chunkers1980

Yes all good. But if your company wanted nothing from you, like mine, which I consider totally reasonable as I've actually paid for it minus the tax....

SO, I paid 55% of it's 'RRP' price, if I have to pay 50% of its value after, the scheme becomes redundent. 0% finance deal is the better option.

Oh yes and I have used it EVERY day to get to work. It's not really the same bike any more any how - everything has been changed bar frame, headset, stem and spacers and the frame bolts.