NEW HMRC Cycle to Work Valuations - upto 25%

fossyant

New Guidance...... not good

18-25% transfer fee, more if the bike is 'popular' or bespoke.

Don't be smug if you've finished the scheme - you may find yourself with a tax liability (I've just finished my scheme 3 months ago).

http://www.hmrc.gov.uk/manuals/eimanual/eim21667a.htm

fossyant

Here if you've already paid the transfer fee.................

http://www.hmrc.gov.uk/manuals/eimanual/EIM21667.htm

alfablue

Or, 25% value, if you pay 5% to transfer, then you are liable for tax on the difference, so £1000 @ 25% = £250 value, you pay £50, get taxed on £200, = £50 or £80 depending on tax band.

Harveytile

In a year I would have clocked up around 7000miles on the FG. If the company wants to charge me those stupid amounts, they can keep it. I would love to see what they would do with it. :roll:

fossyant

Well, it's not the company - HMRC....

Flippin' not happy about it, as I'd probably had got a better deal cash.

alfablue

fossyant wrote:

Well, it's not the company - HMRC....

Flippin' not happy about it, as I'd probably had got a better deal cash.

They don't need to charge the 25%, and if they don't you may (just?) have to pay £50 tax. If my employers stick to the original plan the £1k bike will have cost £650, and then another £50 in tax, £700, still not bad IMHO.

rjsterry

Just my opinion (before I get a load of "where's your source?" but I think the scheme's days are numbered. Enjoy it while you can.

richred_uk

Thanks for alerting me to this - was about to set up the company scheme using a 5% transfer IF the company chose to transfer. Now I have to rework it and lower the rental by the appropriate amount.

alfablue

richred_uk wrote:

Thanks for alerting me to this - was about to set up the company scheme using a 5% transfer IF the company chose to transfer. Now I have to rework it and lower the rental by the appropriate amount.

That is quite inventive - there is nothing to say the hire fees have to be any proportion of the bike value . . .

Another way round it is to retain ownership for several years and reduce fmv as a result.

richred_uk

Only thing with shifting payment from rental to transfer fee is that you lose the tax benefits on the transfer fees. If I thought I would be here in 2 years I'd set up a 2 year scheme, but as I am pretty sure I've got a year to go, I'll have to find the most efficient way to do it over a year (or persuade them they really want to ex gratia the bike to me when I leave in recognition of how I've enthused the place to get fitter lol).

tailwindhome

*AHEM*

In June this was discussed on another thread

http://www.bikeradar.com/forum/viewtopic.php?p=16213849

The OP 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 responded

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?

Alfablue then accused, yes my friends accused me of propagating bilge and scarmonging

Turns out I was correct

Alfablue and I did agree that the actual tax impact could be small if there was a variation between the transfer fee you pay and the HMRC valuation.

The method being used to circumvent this problem is for the company not to transfer the ownership of the bike to you and continue to 'lend' you the bike.

I also gave the worked example at various transfer percentages for a 22% tax payer

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

%FMV	FMV	FMV + VAT	SAL SAC	TOTAL COST	EQV DISC	DISC
1	 £8.50 	  £9.99 	  £587.00 	 £596.99 	 £403.01 	40%
3	 £25.50 	 £29.96 	 £587.00 	 £616.96 	 £383.04 	38%
5	 £42.50 	 £49.94 	 £587.00 	 £636.94 	 £363.06 	36%
7	 £59.50 	 £69.91 	 £587.00 	 £656.91 	 £343.09 	34%
10	£85.00 	 £99.88 	 £587.00 	 £686.88 	 £313.13 	31%
15  £127.50 	 £149.81 	£587.00 	 £736.81 	 £263.19 	26%
25  £212.50 	 £249.69    £587.00 	 £836.69 	 £163.31 	16%

TABLE TWEAKED SLIGHTLY

NOT 100% CORRECT AS ASSUME VAT at 17.5% AND IIRC THE TAX THRESHOLDS HAVE CHANGED A BIT

The principle is right though...for a 20% tax payer a bike with FMV 20% after a year is getting the equivalent of a 16% discount and an interest free loan for a year. Your decision should be made on this basis.

tailwindhome

It is getting to the point were you would be better off just negoiating discount off RPP

A way of killing the scheme quietly?

tailwindhome

alfablue wrote:

richred_uk wrote:

Thanks for alerting me to this - was about to set up the company scheme using a 5% transfer IF the company chose to transfer. Now I have to rework it and lower the rental by the appropriate amount.

That is quite inventive - there is nothing to say the hire fees have to be any proportion of the bike value . . .

Another way round it is to retain ownership for several years and reduce fmv as a result.

I'm not a tax expert

But the rental is the company recovering the cost of the bike from the employees Gross salary.

If you reduce the rental then the company won't recover the cost of the bike. It seems to me that this difference would be a taxable benefit to the employee.

But it's late and I'm tired

Alfa, your second point is correct. Some may baulk at the idea of the company still owning the bike but I take the view that the employee will still have the same use of the bike so why should he care who actually owns it

richred_uk

TailWindHome wrote:

alfablue wrote:

richred_uk wrote:

Thanks for alerting me to this - was about to set up the company scheme using a 5% transfer IF the company chose to transfer. Now I have to rework it and lower the rental by the appropriate amount.

That is quite inventive - there is nothing to say the hire fees have to be any proportion of the bike value . . .

Another way round it is to retain ownership for several years and reduce fmv as a result.

I'm not a tax expert

But the rental is the company recovering the cost of the bike from the employees Gross salary.

If you reduce the rental then the company won't recover the cost of the bike. It seems to me that this difference would be a taxable benefit to the employee.

There's nothing in the guidance to say that the rental has to cover the cost of the bike to the company - indeed there is a reference somewhere in the salary sacrifice paperwork to schemes where the employer does not charge any rent and it is simply a tax free benefit, so the short version is that (by my reading) the rules do not require that the company recoups the cost via rental.

Rich

rjsterry

Um, you don't think your employer might begrudge renting you a bike for less than it cost them?

richred_uk

rjsterry wrote:

Um, you don't think your employer might begrudge renting you a bike for less than it cost them?

No, because they get it back when I buy it from them after 12 months (if of course they choose to offer it to me at that time guv).

Cost to them = £851 after VAT; previously 12 months rental of roughly £71 as salary sacrifice under old scheme plus a nominal £50 (less VAT = £42) at the end to transfer. Income to them = £892 total.

Cost to them = £851 after VAT; now 12 months rental of roughly £53 as salary sacrifice under new scheme plus £250 (les VAT = £213) at the end to transfer. Income to them = £850.

They lose the £42 bonus of the end payment that they had before (but actually my boss told me to deduct that from the rent anyway as he doesn't want the company to profit from the employees on the scheme - just the tax saving).

The company still gets all it's outlay back, just that it comes more at the end of the scheme (and obviously you have to trust that employees and company will stick to the nod & wink agreement to sell, as it can't make up part of the rental agreement).

I can set it out with exact #'s in excel if you want to see how we'll be structuring it.

Rich

tailwindhome

richred_uk wrote:

TailWindHome wrote:

alfablue wrote:

richred_uk wrote:

Thanks for alerting me to this - was about to set up the company scheme using a 5% transfer IF the company chose to transfer. Now I have to rework it and lower the rental by the appropriate amount.

That is quite inventive - there is nothing to say the hire fees have to be any proportion of the bike value . . .

Another way round it is to retain ownership for several years and reduce fmv as a result.

I'm not a tax expert

But the rental is the company recovering the cost of the bike from the employees Gross salary.

If you reduce the rental then the company won't recover the cost of the bike. It seems to me that this difference would be a taxable benefit to the employee.

There's nothing in the guidance to say that the rental has to cover the cost of the bike to the company - indeed there is a reference somewhere in the salary sacrifice paperwork to schemes where the employer does not charge any rent and it is simply a tax free benefit, so the short version is that (by my reading) the rules do not require that the company recoups the cost via rental.

Rich

In my defence it was late

I may have been talking sh1te.

notsoblue

The transfer of ownership thing is pretty mystifying to me... I've just gone through the process of applying for a voucher, through Cyclescheme. And they've sneakily arranged some kind of Transfer of Ownership for 1 pound. They're selling this to employers by explaining that by taking ownership, they're also taking over the reponsiblity for "disposing" of the bike. Its pretty annoying from my perspective, because when it comes to settling up at the end of the hire period, I'll be doing so with Cyclescheme and not my employer. This just pure profit for them because there will be very very few people who will not be taking ownership of the bike at the end of the hire period.

I don't understand how its legal for the Employer to transfer ownership to Cyclescheme for a nominal amount, but it isn't to transfer it to the Employee for anything other than some difficult to define "Fair Market Value".

Looks to me like Cyclescheme are just taking advantage of this ambiguity.

Gazzaputt

I was about to sign up I'll now pull my application.

Headhuunter

I don't think anyone has actually bought their bike from our employer yet following completion of the salary sacrifice period. I don't know if our employer has just forgotten to "sell" the bikes to us.... Probably, we're only a small company and the Partners have more important things to think about. I just won't say anything and let them keep the bike on their books for as long as possible and when they remember the bike will be worth less....

lardboy

Just as my company starts it up...*

Thanks for the example rich_red, I've just quoted it back to my HR dept after they quoted 5% in their document.

*Literally just. I got an e-mail at ten to four.

Headhuunter

lardboy wrote:

Just as my company starts it up...*

Thanks for the example rich_red, I've just quoted it back to my HR dept after they quoted 5% in their document.

*Literally just. I got an e-mail at ten to four.

What? You told them to charge you 25% when they had already agreed 5%? Why?

lardboy

No, I told them to reduce the monthly payments and then charge 25% at the end, making up the difference. BIK queries can easily prompt a full audit, and I'm sure most people are keen to avoid any more involvement with HMRC than strictly necessary.

Headhuunter

Our company is being audited at the moment... I wonder if they'll raise this...

rjsterry

richred_uk wrote:

rjsterry wrote:

Um, you don't think your employer might begrudge renting you a bike for less than it cost them?

No, because they get it back when I buy it from them after 12 months (if of course they choose to offer it to me at that time guv).

Cost to them = £851 after VAT; previously 12 months rental of roughly £71 as salary sacrifice under old scheme plus a nominal £50 (less VAT = £42) at the end to transfer. Income to them = £892 total.

Cost to them = £851 after VAT; now 12 months rental of roughly £53 as salary sacrifice under new scheme plus £250 (les VAT = £213) at the end to transfer. Income to them = £850.

They lose the £42 bonus of the end payment that they had before (but actually my boss told me to deduct that from the rent anyway as he doesn't want the company to profit from the employees on the scheme - just the tax saving).

The company still gets all it's outlay back, just that it comes more at the end of the scheme (and obviously you have to trust that employees and company will stick to the nod & wink agreement to sell, as it can't make up part of the rental agreement).

I can set it out with exact #'s in excel if you want to see how we'll be structuring it.

Rich

Fair point. Affects the company's cashflow a bit, but not in any significant way.

Headhuunter

Has anyone heard of HMRC actually coming down on an employer for actually selling the bike on for less than the recommended value? Haven't HMRC got slightly bigger fish to fry? I asked the woman in accounts where I work about the 2nd hand value of my bike after the scheme was finished and she assumed that the bike automatically became mine and didn't realise that it had to be sold on! One of the other guys in the office has had 2 C2W bikes and has never paid for either (other than the sal sac part) and we've been independently audited a couple of times since then and this has never been raised....

shouldbeinbed

phew got away with a £57.50 FMV for my £1grand purchase after 12 months.

mudcovered

shouldbeinbed wrote:

phew got away with a £57.50 FMV for my £1grand purchase after 12 months.

Hell if the FMV payment at the end of my scheme here hadn't been in the same ballpark I'd have put all the original worn out parts back on that I'd replaced and asked for a revaluation and they could have kept it. I'd replaced wheels, rear, cassette, chain, saddle, front brake unit. Since all of those things (with the exception of the saddle) were so worn out as to render the bike pretty much un-rideable they would have had to drop the valuation or scrapped the bike. In that state my £1000 bike would have been worth about the £50 I payed for it.

Mike

Headhuunter

mudcovered wrote:

shouldbeinbed wrote:

phew got away with a £57.50 FMV for my £1grand purchase after 12 months.

Hell if the FMV payment at the end of my scheme here hadn't been in the same ballpark I'd have put all the original worn out parts back on that I'd replaced and asked for a revaluation and they could have kept it. I'd replaced wheels, rear, cassette, chain, saddle, front brake unit. Since all of those things (with the exception of the saddle) were so worn out as to render the bike pretty much un-rideable they would have had to drop the valuation or scrapped the bike. In that state my £1000 bike would have been worth about the £50 I payed for it.

Mike

Yeah seems a bit unfair that the valuation is fixed at 25% for bikes of £500+. So someone who has ridden their bike hard for the full year, commuting every day and perhaps using it at weekends, through rain, sun and snow is then charged the same for the bike as someone who has barely touched the bike, so it's effectively in new condition. Equally someone who has ridden the bike hard, replaced compnonents that have worn out and paid to keep the bike in good condition could be slapped with the same final bill.

richred_uk

To be pedantic (and I wouldn't be me if I wasn;t pedantic). You CAN charge less than 25% if you can justify it. The HMRC table of valuations will automatically be accepted as FMV. If you have a reason to value it at less than the table, you have to provide proof. In their words:

" * We would expect evidence of a lower value to include:

*
o a photograph of the cycle demonstrating its condition along with a description of any important aspects of its condition that are not evident from photographic evidence,
o broad details of the extent of usage of the cycle (which can vary considerably even between cycles that meet the “qualifying journeys” main use condition for exemption), and
o contemporaneous evidence of the amount for which that type of cycle in that sort of condition would have realised in a private sale and in a sale to a cycle retailer."

If I'd replaced all that mudcovered had , then I'd certainly be challenging it if I'd covered the full price through the rental payments.

Headhuunter

richred_uk wrote:

To be pedantic (and I wouldn't be me if I wasn;t pedantic). You CAN charge less than 25% if you can justify it. The HMRC table of valuations will automatically be accepted as FMV. If you have a reason to value it at less than the table, you have to provide proof. In their words:

" * We would expect evidence of a lower value to include:

*
o a photograph of the cycle demonstrating its condition along with a description of any important aspects of its condition that are not evident from photographic evidence,
o broad details of the extent of usage of the cycle (which can vary considerably even between cycles that meet the “qualifying journeys” main use condition for exemption), and
o contemporaneous evidence of the amount for which that type of cycle in that sort of condition would have realised in a private sale and in a sale to a cycle retailer."

If I'd replaced all that mudcovered had , then I'd certainly be challenging it if I'd covered the full price through the rental payments.

I think this is all too much fuss over nothing. I really don't think HMRC are really going to spend many man hours chasing up photos of 2nd hand bikes to justify FMV which then may be challenged. Utterly pointless waste of taxpayers money. The woman in accounts here said that our Partners can't be @rsed with valuations and as far as they're concerned the bikes are ours...