NEW HMRC Cycle to Work Valuations - upto 25%

Specialized Needs

Headhuunter wrote:

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....

Would they come down on the employer, or the recipient of the benefit in kind?

If HMRC do end up taking a stronger line in practice on proving value (rather than sabre rattling), I can see lots of firms dropping out of C2W because their staff don't buy the bike at the end of the process.

Mind you, personally I did keep all my worn out bits (broken spokes, worn pads and all) and put them back on my bike last time. I doubt it was worth more than 5-10% because of that.

notsoblue

Headhuunter wrote:

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...

I think it matters more to people whose employers have outsourced Bike to Work to Cyclescheme.

Underscore

Specialized Needs wrote:

Would they come down on the employer, or the recipient of the benefit in kind?

I would have thought that it is the latter, unless the company is required to put down the benefit-in-kind on the employee's P11D...

Specialized Needs wrote:

If HMRC do end up taking a stronger line in practice on proving value (rather than sabre rattling), I can see lots of firms dropping out of C2W because their staff don't buy the bike at the end of the process.

I guess that it is more likely that they will simply adopt the HMRC guidance on FMV (so I suspect that the employees will get a less good deal). Of course, some may use it as an excuse to withdraw the scheme...

_

Headhuunter

notsoblue wrote:

Headhuunter wrote:

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...

I think it matters more to people whose employers have outsourced Bike to Work to Cyclescheme.

Ours is outsourced to Cyclescheme but they haven't said anything. If they had the woman in accounts wouldn't have been so clueless... Anyway I'm not going to say anything more at work. If eventually I have to buy the bike at FMV, if it's 2 or 3 years down the line then FMV will definitely be less than 25% as it will be completely worn out. I use my bike for everything - getting to work, shopping trips, transport to the pub etc etc. I haven't got a car so it's my main source of transport.

Headhuunter

This all reminds me of the palava over paying 40% tax on your savings interest if you're in the upper tax bracket. By default you pay a lower rate of tax on savings interest even if you're earning enough to pay 40% tax and you have to inform HMRC that you should have your interest taxed at 40%. When I made it into the 40% bracket I never did and I don't know anyone who has ever bothered. Now all my savings are in my offset mortgage account so I don't earn interest but I've never heard anyone with a couple of grand in savings being chased for the extra fraction of tax on their savings.

Another woman at work was having a panic because she was renting a room in her flat out which she should have been paying tax on as it was over a certain threshold but she asked around friends and people at work who do the same and none of them have ever declared the few pounds in rental income they receive for a room in their own flat.

I should think that HMRC has better things to do than penalise the man on the street, there are probably far higher revenue earning corporates and high net worth individuals who dodge millions in tax every year that need chasing.

hstiles

It's all awfully inconsistent. On the onehand you have orghanisations like SWELTRAC (South & West London Transport Conference) trying to encourage employers to support sustainable methods of transport into work which, if you think about it boils down to

1) Encouraging people to walk to work
2) Encouraging people to cycle to work
3) Encouraging people to car share

and the reality is that 2) is the most achieveable and, for most people, the possibility of a tax free bike should be incentive enough.

The government should adopt a sliding scale for the fair market value based on the number of days per week you cycle in on average. If, like me, you're a good boy (or girl) and cycle in 5 days a week. Each cycle 2 work application has a unique reference number that could be linked to your NI number. Government sets up a basic website where users can log their mileage, the ultimate aim for cyclists being to do as many miles as possible and therefore pay back as little as possible.

Headhuunter

hstiles wrote:

It's all awfully inconsistent. On the onehand you have orghanisations like SWELTRAC (South & West London Transport Conference) trying to encourage employers to support sustainable methods of transport into work which, if you think about it boils down to

1) Encouraging people to walk to work
2) Encouraging people to cycle to work
3) Encouraging people to car share

and the reality is that 2) is the most achieveable and, for most people, the possibility of a tax free bike should be incentive enough.

The government should adopt a sliding scale for the fair market value based on the number of days per week you cycle in on average. If, like me, you're a good boy (or girl) and cycle in 5 days a week. Each cycle 2 work application has a unique reference number that could be linked to your NI number. Government sets up a basic website where users can log their mileage, the ultimate aim for cyclists being to do as many miles as possible and therefore pay back as little as possible.

Pretty open to abuse though. I could say I cycled 20 miles per day last week... How would they prove otherwise?

hfidgen

Seems the media outlets are starting to pick up on this!
http://www.guardian.co.uk/money/2010/au ... scheme-tax


The upshot is that HMRC are applying these rules retrospectively, so ALL cylcescheme bikes will be effected by this. If they apply the full 25% FMV the overall discount is about 12% which is less than you could get by negotiating at the shop or buying in a sale.

However, I think it comes down to whether your employer is willing to play along with you and claim for a much reduced FMV, and whether HMRC actually make the effort to try and enforce the FMVs.

I'm tempted to try and:
- Keep broken parts ready to swap back onto the bike
- In the last month get it good and dirty
- Cosy up to the MD & try to get him onside (it's a small company, and I know him well)

And finally, the C2W scheme makes up a puny part of any company tax return, so unless HMRC are gunning for the company with a full review, this sort of thing will get passed over. As long as you can prove you've made a reasonable stab at a "fair" FMV (cough cough) I reckon it'll be ok.

I think the Guardian article is right though - this uncertainty is going to put a lot of people off the scheme, which is going to hurt all the bike shops. I was speaking to a guy in Evans the other day and he said 30% of their turnover is via this scheme nowadays.

dodgy

I think the best I can hope for is that my company charges an FMV of 5% and I get taxed on the benefit in kind which is the difference between an FMV of 5 and 25%. In my case I had a £1000 voucher, so I'm hoping I will get taxed on the benefit in kind of £200 (the difference between 5 and 25% FMV). The tax on £200 will be reasonably small.

Either way, cyclescheme is kind of redundant now for many people, though there will be some that will take it up. But the whole industry that has built up around the cyclescheme might wither away now, think about all those sub £1000 bikes from Boardman and Planet X. They priced them mainly to entice cyclescheme users.

Shame, I really believe that C2W scheme has resulted in more people riding bikes.

tailwindhome

hfidgen wrote:

I was speaking to a guy in Evans the other day and he said 30% of their turnover is via this scheme nowadays.

Maybe bike prices will stop rising at such an alarming rate

mansun

I've recently signed up for this and had my new bike for 2 weeks.

I thought I would re-read my hire agreement contract and this is what it says...

"When the Hire Agreement has ended, the bicycle and accessories may be disposed of for a nominal sum. This Hire Agreement does not regulate the terms of this disposal."

Not sure what to make of that...

UndercoverElephant

Newly formed Facebook group to protest:

http://www.facebook.com/topic.php?uid=1 ... 0411974108

It really does nullify the whole point of the tax break. :roll:

hfidgen

You still get some discount using the scheme (typically about 15%) so it is worth it, but just make sure you:

- Don't get charged a massive rate by the employer. HMRC suggest only 25% on a £1000 bike, but it remains up to your employer!
- Don't spend more than you can afford to join the scheme! If you can't afford a £800 bike, don't get one...

I do agree though, it really is a shame, this scheme got a lot of people cycling and I can see it slowly dying over the coming year. However, credit crunch and all that...

Headhuunter

Someon suggested that these new rules were a way the new Tory/Lib Dem government could kill off tax efficient schemes without officially killing them. there would be howls of derision if they actually ended the scheme but this way they can kill it by the back door by making it unattractive

sws

The scheme I signed up to provided a voucher for bicycle and safety equipment. Is it just the bicycle element that attracts the changes, or would you have to pay the increased fee for the full value of the voucher ?

sc999cs

sws wrote:

The scheme I signed up to provided a voucher for bicycle and safety equipment. Is it just the bicycle element that attracts the changes, or would you have to pay the increased fee for the full value of the voucher ?

I looked at the guidance and the impression I got was that it was just the cost of the bike. However you'd probably need the receipt to prove what proportion was spent on the bike.

If the worst comes to the worst I'm just looking at it as an interest free loan.

andy83

surely this will only apply to bike taken out on the scheme now not ones already taken. I just finished my first one and paid £54 and am on my second one now but the voucher was for £1k

I hope they arent going to come down hard on this, mine's sourced through cyclescheme aswell

My voucher paid for a cassette, bottom bracket, road wheels and tyres, and the bike I got was a fixie, I dont think they look into the scheme that much

I personally think its just a scare tactic to stop the scheme without officially stopping it. If you think it puts enough people off just saying the company own it, now to say you COULD pay 25% of the bike is another deterrant

shame as i wont be getting another on the scheme. I think ill just budget for the £250 incase i need to pay it, but hopefully not

alfablue

It isn't really about paying 25% for the bike, its about paying tax on any benefit you receive, so if you pay a transfer fee of 5% and the bike is deemed to be worth 25% of initial cost,then you pay tax on 20% so tax on £200 at your tax rate (so between £40 and £100). The guidance isn't about employers profiteering by charging £250 transfer fee,

(Though no doubt there will be a minority of those employers that are hard of thinking who may interpret it that way, and do their employees a favour by charging them £250 thus saving them £40 tax! :roll: )

andy83

ah i see, that makes a bit more sense, but I can see how it would confuse many :roll:

im on a low pay job so tax is low so i should be ok

g00se

The 12 monthly payments are 'officially' rental, so is there any reason why the employer could reduce these so they don't cover the full amount of the bike (gross) - and get the remainder back when the bike is finally sold on to the employee?

meggiedude

g00se wrote:

The 12 monthly payments are 'officially' rental, so is there any reason why the employer could reduce these so they don't cover the full amount of the bike (gross) - and get the remainder back when the bike is finally sold on to the employee?

Thats what should happen, but it probably won't for most of us, especially those in big companies like mine, who will go with the official cyclescheme figures.
When you lease a car the lease costs are proportional to the residual value of that car. The higher the residual value the lower the lease costs. If the residual value of the bikes are changing from a typical 5% (to quote the estimates in cycleschemes own brochure) to 25% then the residuals are higher and so the hire costs should be lower.
But no, it won't happen. Hire costs will stay the same for most, and we will be charged more to buy the bike. The scheme will eventually fold along with lots of local bike stores and people will be back to scouring ebay.
So much for encouraging people back to using their bikes.

PresumingEd

I just posted this on Cake Stop:


Presumably if the employer sells the bike to a 3rd party, such as Cyclescheme, then there is no taxable benefit in kind. The employer could then sell it as whatever price he or she chooses.

Following that logic, Cyclescheme could then sell the bike to the C2W user at whatever price they deem fit; i.e. they could stick to the old 5% formula. Altoiugh there could be a temptation for Cyclescheme to profiteer by charging 25%, I don't see that as being in their long term interests, because if 20-25% FMVs apply, the scheme will very quickly die, leading to meltdown for their business.

I don't see why HMRCs guidleines would apply in such circumstances

Anyone see any problem with such an approach?

Headhuunter

PresumingEd wrote:

I just posted this on Cake Stop:


Presumably if the employer sells the bike to a 3rd party, such as Cyclescheme, then there is no taxable benefit in kind. The employer could then sell it as whatever price he or she chooses.

Following that logic, Cyclescheme could then sell the bike to the C2W user at whatever price they deem fit; i.e. they could stick to the old 5% formula. Altoiugh there could be a temptation for Cyclescheme to profiteer by charging 25%, I don't see that as being in their long term interests, because if 20-25% FMVs apply, the scheme will very quickly die, leading to meltdown for their business.

I don't see why HMRCs guidleines would apply in such circumstances

Anyone see any problem with such an approach?

As I mentioned, is this is the case then employers could sell the bike to *any* corporate it likes. It doesn't have to be Cyclescheme. My employe could sell to my relative or friend's company and my relative or friend could then presumably give me the bike for free.... Any problem with this? If not this completely circumvents the new HMRC rules.

hfidgen

alfablue wrote:

It isn't really about paying 25% for the bike, its about paying tax on any benefit you receive, so if you pay a transfer fee of 5% and the bike is deemed to be worth 25% of initial cost,then you pay tax on 20% so tax on £200 at your tax rate (so between £40 and £100). The guidance isn't about employers profiteering by charging £250 transfer fee.

Nice one - that's better... it makes the scheme very much worth doing still!

gtvlusso

I have done my company scheme (pseudo cyclescheme with Halfords) for 3 years now and had 3 great bikes that I have put loads of mileage on: about 8,000 a year. Because the final payment was £25 from my employer and the bikes were "desirable" - I managed to sell the bikes for more than the value of the total laid out including the final payment.

As such - my incentive to cycle to work everyday and utilise the bike for every errand and club ride activity was massive (effectively becomes a free piece of quality transport).

However, because of the faff of paying full rrp and some stores being a little less keen on throwing in an extra. I will probably drop cyclescheme and go down the route of buying secondhand or in the sales and getting a good rrp discount.

I know that the big corporates (such as the one I work for) will quite simply apply thenew guidance blindly.......

I think it is the start in a long line of nails in the coffin for cyclescheme - one of the best ideas this country has ever come up with to improve general health, traffic and parking issues.

The Rookie

To clarify for some who haven't grasped it.

Thes are not NEW rules, the situation has always been that the bike should only be sold to the employee at FMV and that selling it at anything less is a taxable benefit, as it would be if you followed headhunters suggestions, any benefit you acrue through your employment is potentially a taxable benefit. Not sure why HMRC have said 25%, I guess for a £1K bike with reasonable usage and good maintenance its about right, for a £500 bike with harsher usage and a slight lack of TLC then 10% is probably nearer the mark.

Anyone who has already recieved a benefit could potentially be chased for the next 5 or 6 (can never remember which) years for the income tax on the benefit they recieved, as with all things there have been those who haven't read all the rules, and then when HMRC do 'clarify' it for those who haven't its usually in a scare mongering way to get people attention.

Of course the easy thing t do is to optimise the 'FMV' of the bike at the end, where I used to work for example we used auction prices (traditionaly the lowest) for cars on the basis that if it wasn't sold direct, the employee could go to the auction it would otherwise be sold at and buy it there, if your employer says they will stick all Bikes on ebay, just find a typical ebay price and that is the FMV!

Simon

tailwindhome

PresumingEd wrote:

I just posted this on Cake Stop:


Presumably if the employer sells the bike to a 3rd party, such as Cyclescheme, then there is no taxable benefit in kind. The employer could then sell it as whatever price he or she chooses.

Following that logic, Cyclescheme could then sell the bike to the C2W user at whatever price they deem fit; i.e. they could stick to the old 5% formula. Altoiugh there could be a temptation for Cyclescheme to profiteer by charging 25%, I don't see that as being in their long term interests, because if 20-25% FMVs apply, the scheme will very quickly die, leading to meltdown for their business.

I don't see why HMRCs guidleines would apply in such circumstances

Anyone see any problem with such an approach?

The font is very annoying

Headhuunter

The Beginner wrote:

To clarify for some who haven't grasped it.

Thes are not NEW rules, the situation has always been that the bike should only be sold to the employee at FMV and that selling it at anything less is a taxable benefit, as it would be if you followed headhunters suggestions, any benefit you acrue through your employment is potentially a taxable benefit.

But the employer is not obliged to sell the bike to the employee, they could pass it onto another corporate couldn't they? Then that corporate could pass it on to the employee, effectively circumventing the need for FMV assessment. THis could be done at no cost to anyone. If the bike is not passed directly to the employee then there is no need to sell it at FMV. Or am I missing something?

This is what Cyclescheme seems to be enacting, they want employers to pass the bike to them at a nominal fee and then they pass the bike onto the employee at something less than FMV.

The Rookie

Headhuunter wrote:

But the employer is not obliged to sell the bike to the employee, they could pass it onto another corporate couldn't they? Then that corporate could pass it on to the employee, effectively circumventing the need for FMV assessment. THis could be done at no cost to anyone. If the bike is not passed directly to the employee then there is no need to sell it at FMV. Or am I missing something?

This is what Cyclescheme seems to be enacting, they want employers to pass the bike to them at a nominal fee and then they pass the bike onto the employee at something less than FMV.

As the employee has still benefited due to being that employee its still a benefit in kind, I guess the 3rd party could offer a 'discount' for employee's of said company, but that discount would then still have to be from a realistic RETAIL value to not be a benefit in kind, so that is likley to be roughly equal to a manipulated FMV such as I suggest anyway.

Where I worked a while back I was heavily involved on behalf of the unions with working out a usage scheme for our products for employees and the 'benefit in kind' area is a real minefield, a lot of benefits are simply not chased up by HMRC due to impracticalities of doing so and often informal agreements were reached as to what level could be given before HMRC got interested even though what was agreed was still strictly a taxable benefit.

Simon

PresumingEd

I asked Cyclescheme whetehr or not they would be able to circumvent the FMV rules, as per my earlier post (sorry about the font, TailWindHome; I didn't think it would be that bright!).

Unfortunately hey sent me a standard reponse on the issue but it was still interesting, as it indicated that you will be charged at one of four FMV levels, dependent upon the state of your bike. Not sure quite what process will be followed but I am hoping that I can just self-certify that my bike is knackered and thereby pay the lowest FMV.