Cyclescheme Changes to fair Value

markos1963

So here we go, I have just recieved the final info on my cyclescheme as I come to the end of the agreement. I took a £600 voucher for a £500 bike and the rest on accessories.

I have paid
12x £48.45 four weekly gross payments =£581.40

They want £30 for a final value payment so =£611.40
Less the tax at 20% basic rate =£489.12

But the letter says the IR have assessed the taxable benefit at £120 so that makes the total £609.12

What a FU%%ING rip off. So much for encouraging people back onto cycles

amaferanga

You should pay tax on the £120, not actually pay £120.

markos1963

amaferanga wrote:

You should pay tax on the £120, not actually pay £120.

Thanks for pointing that out, still angry though £513.12 doesn't make it that much of a bargain. I could have got a better deal by negotiating myself with a shop.

mzm70

+1 not the whole £120

I still have difficulty grasping the unfairness of scemes like this, it's so much better for 40% tax payers, luckily I am one, and yes my final payment may be higher this time but overall I'm so much better off.

rolf_f

CiB wrote:

Top_Bhoy wrote:

like most things tax related, it is the richest who benefit the most.

Well state the bleeding obvious why don't you? Higher rate tax payers will benefit more as tax benefit is also at the higher rate. Unless you want to increase the administration of a simple scheme by an order of magnitude just to prevent the awful nightmare of higher rate ta-payers getting a reciprocal benefit, that's how it works. You pay 40%, you get a reduction at that 40%. Not really a big problem is it? Really?

There is a simple way to end this appalling inequity. If the tax system is changed so that we are taxed inversely in proportion to income, the poorest will gain most by tax concessions

PS - do note though that the poor do pay disproportionately more in NI than the higher rate payers so the taxation difference is much less than the 40%-22% you'd think.

Ben6899

curium wrote:

My employer says that I need to get a valuation from a bike shop to get the fair market value.

It's a 2009 tricross sport with a few scrapes and scratches from 2 crashes... What do you reckon it's worth?

Put a £20 in the LBS owner's top pocket and see what he can do in terms of [under]valuing your bike...

Seanos

markos1963 wrote:

amaferanga wrote:

You should pay tax on the £120, not actually pay £120.

Thanks for pointing that out, still angry though £513.12 doesn't make it that much of a bargain. I could have got a better deal by negotiating myself with a shop.

There's also the 11% NI saving to factor in.

markos1963

Seanos wrote:

markos1963 wrote:

amaferanga wrote:

You should pay tax on the £120, not actually pay £120.

Thanks for pointing that out, still angry though £513.12 doesn't make it that much of a bargain. I could have got a better deal by negotiating myself with a shop.

There's also the 11% NI saving to factor in.

Still doesn't equate into the massive savings first trumpeted when the scheme was introduced

top_bhoy

Am I right in thinking that pension contributions are also reduced....which could turn out to be a huge hidden cost 25 years down the line.

It never seemed that great a deal financially (frommy perspective) in the first place. The one advantage it should be acknowledged is that it allowed people to buy a decent bike to start off with and who would never have been able to pay 500+ quid in the one go - the scheme now allows them several months 'free credit' to pay it back. It has probably served its intended purpose of increasing bike ownership and increasing the number of daily cycle journies.

bompington

Top_Bhoy wrote:

Am I right in thinking that pension contributions are also reduced....which could turn out to be a huge hidden cost 25 years down the line.

NI conributions are reduced, occupational pensions are not

bendertherobot

When I had a conversation with our scheme operator in the week *not cyclescheme but one of the biggies, I was told many of the smaller ones had already chucked the towel in with some biggies to follow suit.

Stands to reason really.

Pat Murray

markos1963 wrote:

I have paid
12x £48.45 four weekly gross payments =£581.40

They want £30 for a final value payment so =£611.40
Less the tax at 20% basic rate =£489.12

But the letter says the IR have assessed the taxable benefit at £120 so that makes the total £609.12

What a FU%%ING rip off. So much for encouraging people back onto cycles

Well it would be as you have overpayed.

You spent £600 - your employer recovers £90 vat, leaving £510 due. Taking off the tax this should have left you with 12 payments equating to £34 = £408. Plus a final value figure of 20% of £120 = £24 the total you should have paid is £432. Which for a 12 month loan is good going - better than an interest free loan from the bike shop?

Have you actually checked your payslips / do you understand that your monthly payments are before tax?

PS the NI saving of 11% is the employers not yours!

markos1963

Pat Murray wrote:

markos1963 wrote:

I have paid
12x £48.45 four weekly gross payments =£581.40

They want £30 for a final value payment so =£611.40
Less the tax at 20% basic rate =£489.12

But the letter says the IR have assessed the taxable benefit at £120 so that makes the total £609.12

What a FU%%ING rip off. So much for encouraging people back onto cycles

Well it would be as you have overpayed.

You spent £600 - your employer recovers £90 vat, leaving £510 due. Taking off the tax this should have left you with 12 payments equating to £34 = £408. Plus a final value figure of 20% of £120 = £24 the total you should have paid is £432. Which for a 12 month loan is good going - better than an interest free loan from the bike shop?

Have you actually checked your payslips / do you understand that your monthly payments are before tax?

PS the NI saving of 11% is the employers not yours!

They never passed back the VAT to us even though they are registered hence the cr*p deal. The payments of 48.45 are pre tax and I took off the 20% later as you can see.

Pat Murray

markos1963 wrote:

They never passed back the VAT to us even though they are registered hence the cr*p deal. The payments of 48.45 are pre tax and I took off the 20% later as you can see.

Then I would challenge them as they will have recovered the input VAT on their VAT return.

Notwithstanding this the £600 still cost you £522 in total (£34x12= £408 + £24 FMV + £90 VAT)

Cappuccino

I think the disgraceful thing the taxman has done here is that the government lured over 400,000 people into the scheme on the basis that the perceived value at the end of the period would be around 5%. People did their facts and figures and then thought it was a good scheme.

With 400,000 people already signed up and committed to it, the government then changed the goalposts to suit them, increasing the final figure by a titanic 500% (5% to 25%) for those whose bike cost more than £500, and then backdated it for ALL scheme members not just those that signed up after the date they changed it, and generated a load more money for the government. I think I worked out with average bike costs of £500 and average tax brackets of say 30% the government stood to make approximately £10 million of extra revenue for themselves by introducing this change.

This is basically changing the T&Cs of a contract after 400,000 have already signed up to it - and were this ANY other organisation but the taxman they would never get away with it.

This "fair value" of the bike is also garbage, because they want you to pay the actual value of the bike at the end of the 12 months. However, is paying the FULL COST of the bike (less tax) over 1 year period "fair rental" price to match? I think not. If you rented a car for 1 year, it would not cost you the entire price of the car - more like 1/3rd of the price.

This move is nothing short of theft and daylight robbery from the government, to generate extra cash for themselves. It is scarcely legal and certainly highly immoral to trick 400,000 cyclists into a scheme and then change the parameters, backdated to the start of the scheme.

Now I hear they have brought out another option where you can continue to "rent" the bike for another 31 months and may then buy the bike for only 7% value or something. But the amount you'd pay over the 31 months is massively more than the original cost of the bike.

I signed up to this scheme in May, and am now REALLY wishing I had just bought the bike cash with my own money.

flanners1

Well said that man, altering the T&C's to that extent is a disgrace IMO. My C2W ends this month I am hoping for a 5% payment..............

bendertherobot

Cappuccino wrote:

I think the disgraceful thing the taxman has done here is that the government lured over 400,000 people into the scheme on the basis that the perceived value at the end of the period would be around 5%. People did their facts and figures and then thought it was a good scheme.

With 400,000 people already signed up and committed to it, the government then changed the goalposts to suit them, increasing the final figure by a titanic 500% (5% to 25%) for those whose bike cost more than £500, and then backdated it for ALL scheme members not just those that signed up after the date they changed it, and generated a load more money for the government. I think I worked out with average bike costs of £500 and average tax brackets of say 30% the government stood to make approximately £10 million of extra revenue for themselves by introducing this change.

This is basically changing the T&Cs of a contract after 400,000 have already signed up to it - and were this ANY other organisation but the taxman they would never get away with it.

This "fair value" of the bike is also garbage, because they want you to pay the actual value of the bike at the end of the 12 months. However, is paying the FULL COST of the bike (less tax) over 1 year period "fair rental" price to match? I think not. If you rented a car for 1 year, it would not cost you the entire price of the car - more like 1/3rd of the price.

This move is nothing short of theft and daylight robbery from the government, to generate extra cash for themselves. It is scarcely legal and certainly highly immoral to trick 400,000 cyclists into a scheme and then change the parameters, backdated to the start of the scheme.

Now I hear they have brought out another option where you can continue to "rent" the bike for another 31 months and may then buy the bike for only 7% value or something. But the amount you'd pay over the 31 months is massively more than the original cost of the bike.

I signed up to this scheme in May, and am now REALLY wishing I had just bought the bike cash with my own money.

That's quite some rant. I suffered paying more but come on, HMRC are NOT a party to the contract and nowhere in your contract did it state 5%. In fact it doesn't even state that you automatically buy the bike.

Now, that 31 months thing. It's rent free after the initial period. You rent it for NOTHING once your payments have finished. That's not a change, it's that way now. The longer you put off the final payment, the cheaper it gets.

Cappuccino

bendertherobot wrote:

That's quite some rant. I suffered paying more but come on, HMRC are NOT a party to the contract and nowhere in your contract did it state 5%. In fact it doesn't even state that you automatically buy the bike.

Now, that 31 months thing. It's rent free after the initial period. You rent it for NOTHING once your payments have finished. That's not a change, it's that way now. The longer you put off the final payment, the cheaper it gets.

Yes it certainly was some rant.

Hmm the 31 month thing I must have misunderstood then, my apologies.

However the 5% perceive valuation was certainly advertised at the time the scheme was introduced. Or are you saying 400,000 people dreamt up the 5% figure out of nowhere?

So if it isn't actual breach of contract it would certainly be misleading advertising, except that this is the taxman so the law doesn't seem to apply to him.

And I believe I have a valid point that if you are expected to buy the bike for its genuine "fair worth" at the end of the hire period, then they should consider what a "fair rental" price would be for 1 year renting a vehicle, because it's certainly not its full price.

stabilised

On the FMV payment and getting a bike shop valuation, one of my colleagues did this quite successfully with our employer. He was originally asked for 5% +VAT but disputed that and said that a FMV price for the bike would be the original cost minus the cost of restoring the bike to its original condition. His LBS was happy enough to offer a quote on what it would cost to put the bike back to 'as new' condition (presumably including replacing just about everything and re-spraying the frame and forks) and our employer accepted that as a FMV.

I've (today) received my transfer of ownership slip having paid 5% + VAT (couldn't be bothered with the above malarkey) so am now keeping my fingers crossed that HMRC aren't going to pursue us all for tax on the difference between a 5% FMV and a 25% FMV. Can it really be worth the time and effort that every case could produce?

Headhuunter

FMV is irrelevant anyway. According to this Guardian article....

http://www.guardian.co.uk/money/blog/20 ... ork-scheme

...the new FMV "guidelines" are irrelevant:

"The companies that promote the scheme, such as Halfords and Evans Cycles, have been trying to make sense of the ruling. Lawyers have spent the past two weeks poring over the detail of the HMRC wording. And there is a get-out, according to Evans. You pay monthly, as planned, but at the end of the period you don't buy the bike off your company. You continue to hire it: for free."

"The statutory exemption for cycles loaned to employees is not subject to any time limit and will continue to apply as long as the conditions about use and availability are satisfied … HMRC sees no difficulty in the employee being offered the opportunity to buy the bike at a later date than had originally been expected, and using the market value percentage that applies at that later date." After three years, a £500 bike's fair market value is 12% of the original price, falling to 2% after five years, says HMRC."

So there.... All back on. As you were people, nothing to se here, no cause for alarm...

bendertherobot

Cappuccino wrote:

Yes it certainly was some rant.

Hmm the 31 month thing I must have misunderstood then, my apologies.

However the 5% perceive valuation was certainly advertised at the time the scheme was introduced. Or are you saying 400,000 people dreamt up the 5% figure out of nowhere?

So if it isn't actual breach of contract it would certainly be misleading advertising, except that this is the taxman so the law doesn't seem to apply to him.

And I believe I have a valid point that if you are expected to buy the bike for its genuine "fair worth" at the end of the hire period, then they should consider what a "fair rental" price would be for 1 year renting a vehicle, because it's certainly not its full price.

The taxman didn't mislead you. He couldn't because you had no relationship or contract with him. Your scheme provider might have, take that up with them.

And fair rental? Come on, are you seriously suggesting a £1k carbon bike well maintained should be £50 at the end?

bendertherobot

Headhuunter wrote:

FMV is irrelevant anyway. According to this Guardian article....

http://www.guardian.co.uk/money/blog/20 ... ork-scheme

...the new FMV "guidelines" are irrelevant:

"The companies that promote the scheme, such as Halfords and Evans Cycles, have been trying to make sense of the ruling. Lawyers have spent the past two weeks poring over the detail of the HMRC wording. And there is a get-out, according to Evans. You pay monthly, as planned, but at the end of the period you don't buy the bike off your company. You continue to hire it: for free."

"The statutory exemption for cycles loaned to employees is not subject to any time limit and will continue to apply as long as the conditions about use and availability are satisfied … HMRC sees no difficulty in the employee being offered the opportunity to buy the bike at a later date than had originally been expected, and using the market value percentage that applies at that later date." After three years, a £500 bike's fair market value is 12% of the original price, falling to 2% after five years, says HMRC."

So there.... All back on. As you were people, nothing to se here, no cause for alarm...

They must be terrible lawyers as that was always the case. I've been doing just that with mine (18 month period) to get it beyond the 2 yrs to reduce the amount.

Headhuunter

bendertherobot wrote:

Headhuunter wrote:

FMV is irrelevant anyway. According to this Guardian article....

http://www.guardian.co.uk/money/blog/20 ... ork-scheme

...the new FMV "guidelines" are irrelevant:

"The companies that promote the scheme, such as Halfords and Evans Cycles, have been trying to make sense of the ruling. Lawyers have spent the past two weeks poring over the detail of the HMRC wording. And there is a get-out, according to Evans. You pay monthly, as planned, but at the end of the period you don't buy the bike off your company. You continue to hire it: for free."

"The statutory exemption for cycles loaned to employees is not subject to any time limit and will continue to apply as long as the conditions about use and availability are satisfied … HMRC sees no difficulty in the employee being offered the opportunity to buy the bike at a later date than had originally been expected, and using the market value percentage that applies at that later date." After three years, a £500 bike's fair market value is 12% of the original price, falling to 2% after five years, says HMRC."

So there.... All back on. As you were people, nothing to se here, no cause for alarm...

They must be terrible lawyers as that was always the case. I've been doing just that with mine (18 month period) to get it beyond the 2 yrs to reduce the amount.

My work don't care about any resale value at all, so basically they can keep the bike til it's worth zero, then do the transfer to me at that point

CiB

Wasn't the point that the FMV at handover couldn't be agreed up front as it meant the scheme effectively then became a loan.

5% seems to have become an informal norm; all that's happened is that HMRC have noticed this trend and stepped in to point out - rightly IMHO in case you wondered - that claiming a bike to be worth only 5% of its original value after just 12 months is stretching it a bit, so here's some guidleines chaps.

It seems to me hard to argue against, that the real market value of a 12 month old £250 bike is errr... £12.50, or that a Boardman is readily available second hand for £50. Come on guys.

The workaround - that you don't take ownership for anohter year or two is quite sensible, and so is the fact that the difference is a taxable benefit, not a cost.

stevee_p

OK, so I've got a bike on the cycle to work scheme, my year is up, and I've stopped making my payments on it (I have started the scheme again this year for another bike but that's irrelevant).

Basically, where do I stand now? I was always under the impression that my employer could ask me to pay the 5% FMV at the end of the hire period. Realistically, I haven't heard of anyone in my company having to go through this ordeal, and I don't suppose they will. As far as I'm concerned, the bike is mine, and my employer isn't interested what goes on with it.

They have never even checked to see if I use the bike to get to work or not (though that is my employer's problem, not the scheme).

My voucher came to £700, and I paid (off the top of my head) £37 a month for 12 months = £444 for a £600 bike and £100 worth of accessories. As far as I'm concerned, its a great scheme?

'This is the point where someone points out that by signing up to the scheme, I have agreed to sell my soul to my employer...'

What's the score?

Headhuunter

stevee_p wrote:

OK, so I've got a bike on the cycle to work scheme, my year is up, and I've stopped making my payments on it (I have started the scheme again this year for another bike but that's irrelevant).

Basically, where do I stand now? I was always under the impression that my employer could ask me to pay the 5% FMV at the end of the hire period. Realistically, I haven't heard of anyone in my company having to go through this ordeal, and I don't suppose they will. As far as I'm concerned, the bike is mine, and my employer isn't interested what goes on with it.

They have never even checked to see if I use the bike to get to work or not (though that is my employer's problem, not the scheme).

My voucher came to £700, and I paid (off the top of my head) £37 a month for 12 months = £444 for a £600 bike and £100 worth of accessories. As far as I'm concerned, its a great scheme?

'This is the point where someone points out that by signing up to the scheme, I have agreed to sell my soul to my employer...'

What's the score?

Apparently, according to Evans' lawyers, you can carry on "renting" the bike for free til it's worth nothing and then the company can hand it over to you. That's what I'm doing. My company has no interest in bothering to "sell" the bike to me...

lucan

I'm certainly not going to approach my employers to ask them how much they want off me at the end of the 12 months. I'm hoping that they will be too busy dealing with the major financial problems they will be dealing with over the next few years (along with all public sector employers) to worry about a few quid from me.

In any case I don't think they will have a clue what I spent my voucher on, so how they will be able to assess it's value after 12 months I have no idea.

Phate

Cyclescheme now have a way around the 18/25% MV, where the ownership of the bike transfers to cyclescheme at the end of 12 months, they charge you a deposit of 3/7% and then hire you the bike for free for a further 31months before transferring the ownership to you and keeping the 3/7% deposit!

http://emails.cyclescheme.co.uk/files/mvflowchart.pdf

Headhuunter

Phate wrote:

Cyclescheme now have a way around the 18/25% MV, where the ownership of the bike transfers to cyclescheme at the end of 12 months, they charge you a deposit of 3/7% and then hire you the bike for free for a further 31months before transferring the ownership to you and keeping the 3/7% deposit!

http://emails.cyclescheme.co.uk/files/mvflowchart.pdf

Why would you transfer the bike to Cyclescheme rather than letting your employer keep it...? Unless I suppose the employer wants the bike off its books...

Phate

[/quote]Why would you transfer the bike to Cyclescheme rather than letting your employer keep it...? Unless I suppose the employer wants the bike off its books...[/quote]

I suppose the advantage of cyclescheme owning the bike after the initial 12 months is that if you move jobs then you don't have to buy the bike at that point in time possibly incurring a higher FMV!