Bike4Work Scheme

Skippy2309

Well I just got to read through the T&C on this.... I am ever so slightly in shock still so bare with me.

On the face of it, It appears to be any old Cycle Scheme where you pay for the bike out of your salary over a period of 12months, within the £200 - £1000 price range - as well as (wage dependant) discounts of 35-45% off.

well I kept on reading to make sure I got all the info, the voucher is valid for 12months and can be used on all the usual stuff, can be used to buy more than 1 bike, etc.

Get to the small print, you pay for the bike over 12 months but the bike is still property of the company for another 24months!!!!!

the thing that worries me is the company I work for may lose the contract (we find out in August, but the transfer would be about this time next year) - everyone will be moved to the new company - but the bike will be going with the company as its their property. Which kind of worries me as I would of paid for the bike by that point but I still do not own it

Come on 3 years is a long time to expect the bike to last, you got to maintain it yourself even tho its not your property, if its stolen and replaced on YOUR home insurance the new bike is the companies property. :?

How can it work like that?

tailwindhome

Skippy2309 wrote:

Get to the small print, you pay for the bike over 12 months but the bike is still property of the company for another 24months!!!!!

I may be wrong but my reading of it is this

Cycle to work allows your company to lend you a bike in return for salary sacrifice. At the end of the scheme the company can sell you the bike at fair market value. Judging from previous posts on the topic this would by 3-10% of the original value, ie something fairly nominal.

It would seem that HMRC are cracking down on this method of valuation which to be fair is a lot lower than the bike would acheive in a fair market (eg Ebay)

Your company is getting round this by not transferring ownership to you, just letting you use the bike for free for 24 months. At the end of the 24 months they may then transfer the bike to you for a nominal fee.

I'm not sure what will happen if you leave the company or change employers or indeed the legal position. But have to ask who is going to chase up a second hand bike?

Skippy2309

well the company in charge could be different by this time next year, which is my worry... A grands worth of bike is still gonna be worth something after a year - its a weird situation, I want to take it out but its that Extra 24months on the end thats got me wondering.

andy83

i just got an email after 12 months asking if i wanted to purchase the equipment, i paid this and then got another email saying i had took ownership of the equipment

The bike is not mine and not my works. After 12 months you should be able to just buy it

tailwindhome

andy83 wrote:

i just got an email after 12 months asking if i wanted to purchase the equipment, i paid this and then got another email saying i had took ownership of the equipment

The bike is not mine and not my works. After 12 months you should be able to just buy it

is this a typo?


You can buy the bike after 12 months but would be liable for Tax and NI on the difference between your employer's Fair Market Value and what HMRC say the Fair Market Value is.

For example how much did you (Andy83) pay for final transfer of the bike and how much do you reckon it would fetch on Ebay?

Eau Rouge

Is there any actual evidence of HMRC having cracked down on the scheme? Cyclescheme, one of the largest operators of the scheme sold me my bike just last month for about 5%. If HMRC were cracking down on anyone then it would be the "big guys" like them.
Companies running their own scheme can tweak it in many ways (such as the OP's 2 years thing) including blaming fictitious HMRC "crackdowns" for a bit of free cash from employees.

My agreement spelt out what happened if I had left the company during the 12 months, which I understand really is something HMRC require in all salary sacrafice schemes, so yours should also say what happens. Ours was that the remaining balance would be paid from taxed money (i.e. no salary sacrifice) then offered for sale as usual.

tailwindhome

Eau Rouge wrote:

Is there any actual evidence of HMRC having cracked down on the scheme? Cyclescheme, one of the largest operators of the scheme sold me my bike just last month for about 5%. If HMRC were cracking down on anyone then it would be the "big guys" like them.

I have no direct experience of Cyclescheme ( though have now convinced the MD that it's a scheme worth implementing here) and the 'crackdown' may just be hearsay, there seem to have been frequent posts on the topic of fair market values.

Companies running their own scheme can tweak it in many ways (such as the OP's 2 years thing) including blaming fictitious HMRC "crackdowns" for a bit of free cash from employees

My understanding of the original post was that the additional period of 24 months involved no cash payments

rolf_f

I think on our scheme (run through Cyclescheme) we are going to get a questionaire to fill in. Presumably it will have questions like: is the bike still in mint condition, did you only cycle to work twice on it, do you keep it in your bedroom and polish it every night...... Depending on the answers, the final payment will be allocated a percentage category.

Re OPs concerns. One thing I note in our FAQs is that if you leave the company, the presumption is that you make the final payment immediately and the remainder of the loan is taken out of your final salary payment. There is nothing about handing the bike back.

In other words, the presumption is that if anything effectively breaks the loan early, you pay up and keep the bike.

UndercoverElephant

If the company owns the bike for a further two years after the load agreement, they can depreciate it fully as an asset and transfer it to you free of charge at that point. That way they take full advantage of writing it down against tax.

Headhuunter

I've never heard of a crack down on nominal sale value, the only thing I've heard HMRC has issues with is going over the £1000 limit (without a credit agreement) and the individual paying extra for a bike and bits. This makes ownership very difficult to ascertain.

alfablue

It would seem that HMRC are cracking down on this method of valuation which to be fair is a lot lower than the bike would acheive in a fair market (eg Ebay)

3 points:

1) there is no "crackdown" - it is bilge and scaremongering being propagated on fora such as these, when challenged, nobody can actually provide an HMRC source indicating any changes from the original regulations. Please don't repeat this scaremongering unless you have an authoritative source, which you quote.

2) FMV is not what the machine would fetch on eBay, by any stretch of the imagination (if anyone has read Steelem's "ripped off" thread you will realise that this is not a sane method of valuation).

3) If you buy the bike for less than the FMV, there is no problem, you merely pay tax at your rate (22%, 40%, 50%) on the benefit - so FMV = £150, you pay £50, benefit = £100, tax due at basic rate = £22 - it's no biggy :roll:

tailwindhome

alfablue wrote:

It would seem that HMRC are cracking down on this method of valuation which to be fair is a lot lower than the bike would acheive in a fair market (eg Ebay)

3 points:

1) there is no "crackdown" - it is bilge and scaremongering being propagated on fora such as these, when challenged, nobody can actually provide an HMRC source indicating any changes from the original regulations. Please don't repeat this scaremongering unless you have an authoritative source, which you quote.

http://www.cyclescheme.co.uk/employer,saleofcycles.htm

December 2009

Sale of cycles after the end of hire period
HMRC has clarified their stance on the sale of cycles (or Transfer of Ownership) to employees after the end of a hire period by stating the following:

‘… An employer or a third party cycle provider may choose to offer the cycle for sale to the employee after the loan has ended. If the employee is able to buy the cycle for less than its market value, the difference will be liable to tax and to employer’s Class 1A NIC liability’;

and

‘each cycle that is sold in this way should be valued at the time of sale’;

It is worth pointing out that the sale of cycles after the end of the hire period will have no bearing on the original tax exemption under the salary sacrifice arrangement; any subsequent liability for the perceived shortfall in the amount charged for the sale will be limited to the employee’s tax and employer’s NI.

To avoid any such liability, Cyclescheme recommends employers to nominate at any point during their scheme to transfer ownership of all Bicycles to Cyclescheme, and take advantage of our free-of-charge Transfer of Ownership service.

Alternatively, employers who choose to administer the sale of cycles themselves will need to seek expert advice to value Bicycles after the end of each individual hire period, or direct employees to do so independently, and charge an appropriate Fair Market Value.

<snip>

After the end of each hire period Cyclescheme will contact the employee to assess the condition of the Bicycle and issue a Secondary Agreement for the appropriate value. Cyclescheme utilises the extensive knowledge and experience of its Partner Bike Shops, currently numbering over 1500 outlets across the UK, when evaluating the condition of bikes.

Needless to say, it is not possible to predict the market value of a bike prior to the end of the hire period, but in our experience the bike’s value is typically a fraction of the original retail price due to the frequency of usage encountered when commuting to work throughout the year and any additional leisure usage

http://www.hmrc.gov.uk/specialist/cycles_bus_passes.pdf

Sale of cycles after end of loan period
The cycles exemption relates solely to cycles that are not sold to the employee. However, an employer or a third party cycle provider may choose to offer the cycle for sale to the employee after the loan has ended. If the employee is able to buy the cycle for less than its market value, the difference will liable to tax and to employer’s Class 1A NIC liability.

There is currently no agreement about any simplified approach to valuing cycles and therefore each cycle that is sold in this way should be valued at the time of sale.

Where a cycle is not sold to the employee and continues to be loaned beyond the original period set out in the salary sacrifice arrangement, the tax exemption will continue to apply as long as the conditions continue to be satisfied.

Paragraph 3 is the reason for the 24 months additional free loan

2) FMV is not what the machine would fetch on eBay, by any stretch of the imagination (if anyone has read Steelem's "ripped off" thread you will realise that this is not a sane method of valuation).

Define Fair Market Value then.

The key point is what's the bike 'worth' versus how much is the employee getting it for

The thread you quote concerned a 'fake' bike which which was the wrong size and had mismatched wheels......



I'll come back to your last point later...with numbers

You are right but it really is a case of seeing the full picture

alfablue

Tailwind, I would say, firstly, that I believe Cyclescheme are over-egging the issue, because they really want employers to give them the bikes to sell back to the riders, so they want to give the impression to employers that it is a big hassle and they could get their fingers burned. (The "...seek expert advice" bit is clever - it says you are going to need to find an expert, it'll cost you, and here we are - so you may as well just give us the bikes!) Cyclescheme then stand to make a shed load more money because they get given free bikes to sell!

The HMRC bits you cite are as they have always been. Cyclescheme are just feeding the paranoia a little bit to make more money (can't blame them, and people LOVE scare stories so it feeds a ready audience) - but it explains why they were the UK's fastest growing business in 2009!

Evans released a paper advising on valuing used commuter bikes, with descriptions of different conditions, but they could foresee that a year old bike could be worth in the region of 5-10% if it had done reasonable mileage. The paper is on this forum somewhere. Their assessment included the issue of restoring bikes to a safe / roadworthy / saleable condition.

I cited the "ripped off" thread really to indicate the lack of judgement shown by some eBay users - therefore what things sell for on eBay cannot be used as a valid valuation analogy. I have often sold secondhand goods for more than the new price, for example.

alfablue

Just to add, I'm on my second Cyclescheme bike - they actually emailed me at the end of the first loan period asking me to pay for it - I had already paid my employer but I guess they assumed they were going to get it

tailwindhome

RETAIL COST OF BIKE £1,000
LESS VAT (rounded) £150
SALARY SACRIFICED £850

REDUCTION IN TAKE HOME PAY £587 net of income tax and NI

NOTIONAL MONTHLY DEDUCTION £48.92

CYCLE SCHEME AS IS

% FMV	 FMV 	FMV+VAT	FOREGONE	TOTAL COST	DISCOUNT	
						
1	 £10 	 £11.75 	 £587.00 	 £598.75 	 £401.25 	40%
3	 £30 	 £35.25 	 £587.00 	 £622.25 	 £377.75 	38%
5	 £50 	 £58.75 	 £587.00 	 £645.75 	 £354.25 	35%
7	 £70 	 £82.25 	 £587.00 	 £669.25 	 £330.75 	33%
10	£100	 £117.50	 £587.00 	 £704.50 	 £295.50 	30%
15   £150    £176.25    £587.00 	 £763.25 	 £236.75 	24%

alfablue

Hmmm, can you explain the first table for me?

Why FMV = £300?

What is the source?

alfablue

Just found the Cyclescheme email - they valued my bike at £58.69

Eau Rouge

alfablue wrote:

Just found the Cyclescheme email - they valued my bike at £58.69

They valued mine at ~5%, in April, without any questionnaire or ever having even seen it.

tailwindhome

alfablue wrote:

Hmmm, can you explain the first table for me?

The first table is based on an employee on £20,000 sacrificing £850 of salary and getting the LOAN of a bike RRP £1000 for 1 year.

By sacrificing £850 the employee is effectively foregoing £587 of take home pay for the loan of the bike

At the end of the scheme the employer decides to sell the employee the bike for 1% of the original value (1% of £1000)+vat

Therefore the bike has cost the employee £598.75 (a discount of £401.25 or 40.1%)

The table illustrates the total cost to the employee at various levels of FMV

tailwindhome

The Evans method of valuation as mentioned by AlfaBlue, so long as HMRC agree the valuations then there is no issue, though it is in Evans interest to undervalue the second hand bikes to keep the Cycle2Work scheme as beneficial as possible

That said I'd be delighted to buy an excellent condition 1 year old £1000 bike for £150.

If anyone has one PM me.

There's a discussion on this over on Road -> Road Beginners -> Why Is C2W So Popular. In it, is Evans Cycles own valuation methodology...

Bear in mind this from their retail PoV, not 'What you'd get on Ebay'

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"

spasypaddy

Tailwindhome having seen those forms being filled in, its very easy to have the bike valued at fair condition.

a bike thats been used for a year (as id imagine most people on this forum would use it) will nearly always be in the Fair Condition category, so 6% of £1000 is £60

rolf_f

Just make sure, if the bike is to be inspected, you take a ride along a back road behind a muck spreader first.....

tailwindhome

spasypaddy wrote:

Tailwindhome having seen those forms being filled in, its very easy to have the bike valued at fair condition.

a bike thats been used for a year (as id imagine most people on this forum would use it) will nearly always be in the Fair Condition category, so 6% of £1000 is £60

I'll take two

Thanks

DDD. I reckon your Kuota was c£1500 new and now sits in Evans classification - excellent condition. I'll give you FMV for it. £225 sound ok?


Jesting aside I have remove the example of tax implications of a low FMV from my earlier post. While they are factually correct, I don't want to dissuade anyone from what is a otherwise excellent scheme.


I may seem that I'm freakishly interested in this thread. It's just that only this week I persuaded the MD to support the scheme and I'm now looking into the practicalities of launching the scheme

Skippy2309

Re-read it today, they state that they MAY offer to sell you the bike at the end of the 36 month period... your expected to maintain the bike, etc.

I am going to read through it again tomorrow, to make sure I have all the info, as it says lots of stuff most does not seem to add up IMO. Such as if you top up the voucher (which it says you can do) the bike still belongs to the company and there will be a fair market value of the total cost of the bike.

So a £1700 Cannondale CAAD9 which holds its value could end up costing me £500+ at the end of the 3 year period after paying off the voucher already.... plus I doubt chains, chain rings, cassettes, etc will last 3 years.

alfablue

They say "may" because if they say for definite it becomes a hire purchase agreement rather than a hire agreement, the former does not qualify for the tax break that makes the scheme work. As such the agreements seem potentially alarming, but no one is running the scheme to screw the employees (except a rogue employer perhaps).

Skippy2309

I am thinking about just diving in and doing this, I am looking at getting a CAAD9, pedals, shoes, rack and Pannier with lights, I got most of the money ready and waiting just waiting on Evans getting the bloody bike lol