Cycle to Work final valuation

badlydrunkboy

My employers have just started the C2W scheme and I've ordered all my stuff including a nice shiny Scott Speedster S50. HR have just sent out the final valuation table and i was a little shocked. Is this the norm now?

Acceptable disposal value percentage
Age of cycle Original price £500+
1 year 25%
18 months 21%
2 years 17%
3 years 12%
4 years 7%
5 years 2%
6 years & over Negligible

Kinda makes me think i'd have been better off doing it through a 3 year interest free deal.

jds_1981

Or just negotiating hard at the shop?

DonDaddyD

So after a year the bike will cost you £125. It does seem a bit off, but you wouldn't get the same bike, a year old, for that price.

I'd do it, I'd probably max the voucher to £1000 and pay £250 at the end of the year, seems high but compared to other markets, not so much.

I could be wrong.

gtvlusso

Give the bike back - worn out!

badlydrunkboy

THe speedster cost £700 so would cost £175 at the end of it. Considering i'll be making 12 payments of £45.17 that would mean that after a year, if i buy the bike, it would have cost me a total of £723.52 (minus the other stuff i've bought on the scheme like shorts, lock etc)

ericonabike

Presumably the £45.17 is before tax? That plus a low end valuation was always key to this being a good deal for the employee. Your employer is using the new 'guidance' issued by HMRc on end value - previpously many employers, including mine, were using a nominal end value of 5%. It would e a bold or foolish employer now who went against HMRC 'guidance'. To my mind, if you're a standard rate taxpeyer, the scheme has lost its shine - you're as well getting a better deal with your LBS. Incidentally, you could ask not to 'buy the bike back' immedfiatley at the end of the 12 month 'loan' period. If yuouy leave it five years the end value is down to zero!

badlydrunkboy

yeah i was thinking i might just carry on riding it without paying for it or just give it back and start again on a better bike, if i get the bug.

badlydrunkboy

Sorry, didnt quite understand the before tax bit. The £45.17 is what i'll miss out of my pay packet.The salary sacrifice is £65.47

richred_uk

The reason it now looks bad is that they are charging you 100% of the bike cost as rental and THEN adding 25% on as the final valuation - so your company/ scheme is 'selling' you a £785 bike package for about £950 - if I were you I'd be asking them to revise the rental payments down to cover 75% of the package's value.

That's what we've set up at my work, and it's meant my tax saving has gone from £360 on a £1000 package to £310 - not bad at all, and the company still recovers 100% of their investment as well as gaining their NIC benefit. If they are charging you 100% of the value as rental plus 25% at the end, it's a crappy deal and should be avoided.

EDIT - I have a very simple spreadsheet that sets out the costs and benefits to employer and employee - if anyone wants a copy, just drop me a PM and I'll email it across.

merkin

Hmm, tories get in. Lower rate taxpayers lose a perk. Higher rate tax payers still benefit. :roll:
The scheme was never available to everyone anyway. It relied on the good will of employers to work. It would have been fairer to have offered a reduced vat scheme or similar.

richred_uk

loathe as I am to defend the tories, the scheme really hasn't got a lot worse unless it is managed by the terminally unimaginative - if you drop the rental to 75% of the value and pay 25% at the end, you only lose the tax benefit on the 20% difference in the final payment, which is max £200, so a loss of about £70-ish to a std rate tax payer vs the previous scheme.

jds_1981

As previously stated, would have been much better for them to define bikes and then reduce the VAT on bikes.

Pufftmw

Its up to the company to set a charge which can be anything but is usually taken to be an additional 1 months payment.

pst88

Well boohoo, you get nothing for nothing.

Tonymufc

Cyclescheme have the new HMRC guidelines on their site. Unless I'm reading it wrong, it still seems a good deal. Like I said I may be reading it wrong.

badlydrunkboy

Pufftmw wrote:

Its up to the company to set a charge which can be anything but is usually taken to be an additional 1 months payment.

I think this is what's changed in that the company HAS to charge a minimum percentage as outlined by the HMRC table above.

It's not a massive issue for me as i intend to buy it anyway but might just have to wait another 6 months or so till i can afford it and then use it as a winter bike when i get another but it caused quite a stir in the office today and it seemed many people were put off by it.

badlydrunkboy

pst88 wrote:

Well boohoo, you get nothing for nothing.

Not quite sure what you mean by this :?

gbsahne001

surely the 25% fmv is subject to condition of the bike; If I was to get a £700 bike on the scheme after a year you'd need to spend at least £200 - £300 to just get it back on the road; new tyres, new chain, new cassette and freewheel, possibly new front crankset & BB.

That doesn't include the stuff that would have needed to be replaced in the interim; so for me 25% seems like a bad deal.

richred_uk

you can sell for less than 25%, but the list of evidence they want that a bike is worth less than the 25% is pretty onerous - http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm

* If employers chose to use lower values, it would remain open to HMRC to challenge these and the employer or employee (as appropriate) would need to be able to provide evidence in support of these values i.e. to demonstrate that the employee could have realised no more than these sums from sale or disposal of the cycle. 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.

sketchley

badlydrunkboy wrote:

My employers have just started the C2W scheme and I've ordered all my stuff including a nice shiny Scott Speedster S50. HR have just sent out the final valuation table and i was a little shocked. Is this the norm now?

Acceptable disposal value percentage
Age of cycle Original price £500+
1 year 25%
18 months 21%
2 years 17%
3 years 12%
4 years 7%
5 years 2%
6 years & over Negligible

Kinda makes me think i'd have been better off doing it through a 3 year interest free deal.

They are not allowed to do this (i.e. make an offer to buy at the end of rental). It implies a contract to buy the bike at the end of the rental period. That would make it a lease purchase and subject to VAT on each months rental. You are renting the bike (which is VAT free) from your company for 12 months via salary scarfice which is deducted before tax. They are buying the bike and as VAT reg company they then claim the vat back. At the end of period optionally you can purchase the bike, this must be a fair market value and VAT should be charged (it is important to do this otherwise VAT could be charge retrospectively on the rental cost). You do not have right to buy the bike and company do not have to sell it. It can be argued that a bike used for heavy commuting for one year solid should be in need of serious overhall at end of rental period and therefor it could be argued that acceptable market value is 5% of voucher price when speaking with HMRC. Your company should not care about what the value is at the end of the period as they have already recovered full cost of renting you the bike via salary scarifice. At end of scheme they do have to sell you bike and you do not have to buy it, to imply a contract or comitment from either party otherwise does not work.

Something doesn't add up though.

If you had a £700 voucher the calculation sould be as follows first you company claims back the VAT at 17.5% so that leaves £595

You make 12 month payments of £ 49,58 (before tax). If you paid 40% tax on this this would mean a deduction from you pay packet of £35.41 on 22% tax of £40.63.

12 months cost to you

40% £ 424.92
22% £ 487.56

Even paying the £125 it's should still be over £100 cheaper.

So there is something wrong with your employers calculation of the £700 was already after vat in which you would have to pay VAT if you brought bike on 3 year interest free credit.


--
Chris

sketchley

http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm

Ah I see now, HMRC have offered guidlines on calculating the final value, but it's still only guide lines and not a contract or offer to sell. Your employer is just quoting the guidlines to you.

What makes sense is that if you buy a bike on cycle to work ride it a lot, to make sure it's value goes down after 12 months

As said above by someone else if 25% is what you are going to pay after 1 year then agree 75% cost or the rental, although you would then pay vat on the 25%. Or just conintue renting over 5 years with a much smaller rental payment in year 2,3,4 & 5 (e.g. £1 a month or something). It shouldn't matter to your employer as long as they get their money back. There is nothing in the rules saying you must pay 1/12th of the cost each month for 12 months, the rental fee is whatever you agree.

I still think there is something is up with the figures you gave though.

--
Chris

warthog562

it says on the site that you need to privide photographic evidence, well surely before you come to the 12 month mark a "crash" might be in order. all you need is someone you know with a bent wheel that even remotely resembles the other one and take a pic of the damaged bike. or is there something that says you are to fix any crash damage.

alternitivly you could get a "quote" from a bike shop estimating the repair bill to return the bike to road worthy condition.

either way your company keeps them on a file somewhere and they then have evidence for selling the bike cheap.

just a thought is this fraud.

Pufftmw

Give them the bike back - you are under no obligation to buy it and you're only hiring it.

El Capitano

I've gone through the C2W scheme have just paid the final purchase payment for my bike. I believe the scheme might changed since I did this, as the wording on the new scheme has changed (Mrs C would kill me if I came home with another bike - worth considering though...)

Here is what I paid:

Bike: £829.99
Helmet: 59.38
Voucher Cost: £889.37

Monthly Salary Sacrifice: £75 (X12 = £900)
Actual Monthly Payment: £52.95 (after tax/national insurance) (X12 = £635.36)

That's a total saving of £264.58

Final purchase payment: £52.25

So I ended up paying approximately £200 less than RRP for my bike.

sketchley

http://www.evanscycles.com/uploads/File ... nce_V2.pdf

Worth a read

esp. this bit

The agreement to hire a cycle is separate to an agreement to enter into a salary sacrifice arrangement to
reimburse an employer. Therefore:
1. The term of the hire period can exceed the repayment period of the salary sacrifice.
2. The amount of an employees’ salary sacrifice does not have to equal the value of the equipment
being hired.
For example:
An employee can enter into a 1 year salary sacrifice with a 3 year hire term, meaning that the employer
is reimbursed within 12 months, whilst the employee has tax free use of the cycle for longer.

CiB

Pufftmw wrote:

Give them the bike back - you are under no obligation to buy it and you're only hiring it.

Some employees insist that you either buy it at their FMV, or pay a disposal fee equivalent to the final payment.

Extending the hire period is the best option. Alternatively paying less than the FMV and then taking the tax hit on the taxable benefit in kind saves a bit, which amounts to 22% of the difference between the actual payment and guidleine FMV.

wreckedmyklein

Just a couple of thoughts:
Clothing loses value much quicker than bikes - if you spent half your money on a bike and the rest on Assos shorts and Sidi shoes, could you not evidence that you should pay 25% of the bike and much less than 25% for the clothing? Second hand shorts are not high up on my list of must buys.

What happens if your bike is stolen . Do you still need to buy the bike, or can you leave it to the employer to try to recover it?

El Capitano

wreckedmyklein wrote:

What happens if your bike is stolen . Do you still need to buy the bike, or can you leave it to the employer to try to recover it?

Just checked the small print on the scheme I took part in and you were responsible for the insurance of the bike during the hire period. Not sure if this would be the same for every scheme, but makes sense really.

boingboing12345

One major point not mentioned.

The employer has deducted the salary over 12m to the value they paid for the bike, they then take 25% as per the HMRC guidelines.

They have therefore taken 25% more than the company has paid for the bike, which drops straight to the bottom line!

I know this as I run a large site with several bikes on this scheme and if I follow the guidelines I will bolster my P & L next August with a few thousand! That sounds completely unreasonable as I have already recovered my outlay.

I have raised this with HR at work!

wreckedmyklein

I understand that I am responsible for insurance so that I am covered in the normal way.

But in addition..... if I have my bike stolen, I not only lose the bike, but at the end of the rental period I either have to pay 25% of its new price to my employer or buy a replacement bike and return it to my employer. Bargain! Surely a bike that cannot be found has a market value of less than 25% of its purchase price.

I will chat to the guy at work who had his bike stolen a couple of years ago and see what happened at the end of his rental period.

I note reading other HMRC material that it recognises that clothes, helmets, locks and lights are worth less than 25% after a year. Also, the purchase price used for a bike can exclude VAT, ie a £550 bike has a purchase price below £500 so you can use the lower scale for its value after a year

MarkW100

This is how mine was worked out by our Finance dept

Value of bike 999.99
Accessories 0.00
Excluding Helmet 0.00
VAT saving 17.5% (148.93)
Including Helmet 0.00
Gross cost to Mark 851.06

Further savings:
Tax (assuming 20%) (170.21)
NIC (assuming 11%) (93.62)

Net cost 637.23

Total saving 362.76 36%

Gross Weekly contribution 16.37
Gross Monthly contribution 70.92

Net Weekly contribution 12.25
Net Monthly contribution 53.10

Final Payment 5% Including VAT 50.00