Cycle to work - Where do I stand?

MacMonsterUk

In May 2010 I entered the cycle scheme with my employer for a £999 bike on a 12 month loan period. I am leaving in the next few weeks for a new job and my employer has told me they are going to deduct £255 (25% original value + VAT) from my final salary as per the HMRC guildlines.

Considering that my employer did not make me aware of these guidelines before I entered the contract and to my knowledge they did not exist till August 2010 should I have to pay anything above the 'nominal amount' that I was originally advised?

I really want to contest this as I feel that it is not fair to retrospectively add conditions to a contract after it has been entered. I also now feel that I have been slightly mis-sold the cycle scheme contract.

Has anyone had a similar situation that's worked out ok or any advice what to do (other than roll-over and accept it)

Thanks
Jim

bails87

You could say you don't want the bike.

Did you sign a contract for the cyclescheme? You should have. If you did then you probably agreed to those terms.

Tonymufc

Mac unless I'm mistaken (and I'm sure someone will correct me if I am) but to the best of my knowledge if you leave your current employment before you complete your hire period then you are liable for the FULL amount of the bike. Seems you might be getting a good deal.

mossychops

Remember you don't have to "buy" the bike off them if you would rather write off what you've spent so far. You haven't actually bought the bike on a cycle to work scheme, you have rented it from your employer for the last x months and now they are offering to sell you the bike for what the HMRC reckon it should be worth.

I don't think you can have them for that as they are not actually allowed to give you a final cost when you take the scheme out or it becomes a loan to buy a bike. The 2 options I have seen here are for the company to give you the bike for free as a benefit in kind and you pay the tax on the £225 or for the company to "own" the bike for the next 4 years and rent it to you for £1 a year and then after 5 years it is written off the books so they can give you the bike for free.

sketchley

Hi Jim,

Sorry changes apply to existing scheme member as well as new ones, what you employer did / didn't say when you joined is irrelevant. What's more your "contract" in 2010 was simply for the hire of the bike, there is no contract of sale at the end as that would make it a hire purchase and subject to tax on the repayments. To put another way your employer is now offering to sell you the bike at 25% of FMV, this offer was not made in 2010 it was made after the new guidelines.

However it's not all bad news point your employer at these links and see what they say.

http://www.cyclescheme.co.uk/employers/ ... mrc-update and http://www.evanscycles.com/ride2work/tr ... ip-options

You should be able to agree an extension to the hire for another 4 years at £0 per month. You will need a contract amendment back dated to before the end of the original hire period. After 4 years your company can the transfer the bike to you for nothing. Make sure you point out to them that they have already recovered the cost of the bike so this is a zero cost option to both of you. Please note during these 4 years your company will still own the bike so you cannot sell it.

Also search for other thread in this forum on same topic it has been done to a few times already.

sketchley

Ah sorry didn't read the whole OP

You can no longer hire the bike from you employer under cycle 2work if you leave them , so if you keep the bike it's a benefit that is taxable.

I am not a lawyer, but you could try this. Give the bike back and leave the company. Wait a few weeks then offer to buy it from them. As you are not an employee any more it is not a benefit and is not taxable. You cannot contract to do this as that would been it was benefit. But if you get on well with MD might be worth ago. Another option is to do this via a third party. For example I could buy the bike for £1 from you employer then sell it to you for the same. As I said I am not a lawyer but I think that would solve the problem.

If you sold the bike in future for more than you paid you may need to pay Capital gains tax if you are over your annual threshold which is about £8k iirc.

MacMonsterUk

I completed the hire period in May 2011. The terms and conditions I signed up to are really vague and with regard to the end of the hire agreement only mention the following:

"The cycle and accessories will be purchased by <Employer>. These goods remain the property of <Employer> and may not be sold by you."

and

"At the end of the agreement you will return the cycle and accessories to <Employer> in good condition (fair wear and tear only excepted)."

Although a part of me wants to tell them they can keep the bike and to suggest a place that they can keep it, I came across this . http://www.hmrc.gov.uk/manuals/eimanual/EIM21667.htm

... suggesting that it is acceptable for my employer to transfer ownership to me and treat it as a taxable benefit. Unless I misunderstood it.

bails87

MacMonsterUk wrote:

I

Although a part of me wants to tell them they can keep the bike and to suggest a place that they can keep it, I came across this . http://www.hmrc.gov.uk/manuals/eimanual/EIM21667.htm

... suggesting that it is acceptable for my employer to transfer ownership to me and treat it as a taxable benefit. Unless I misunderstood it.

In the eyes of the taxman then it's acceptable. But if your company wants to charge you £250 for the bike then that's their choice. As it says, they don't have to sell/transfer it ot you at all, it's their bike after all.

joelsim

Why don't you call Cyclescheme and ask them?

MacMonsterUk

It wasn't done through cyclescheme - my employer manages it all themselves which had the advantage of not being tied to a particular retailer.

So far I'm thinking about suggesting the 'third party route'. There's a chance they might go for it.

sketchley

MacMonsterUk wrote:

I completed the hire period in May 2011. The terms and conditions I signed up to are really vague and with regard to the end of the hire agreement only mention the following:

"The cycle and accessories will be purchased by <Employer>. These goods remain the property of <Employer> and may not be sold by you."

and

"At the end of the agreement you will return the cycle and accessories to <Employer> in good condition (fair wear and tear only excepted)."

Although a part of me wants to tell them they can keep the bike and to suggest a place that they can keep it, I came across this . http://www.hmrc.gov.uk/manuals/eimanual/EIM21667.htm

... suggesting that it is acceptable for my employer to transfer ownership to me and treat it as a taxable benefit. Unless I misunderstood it.

Yes correct. However they must do this by filling out a P11D form. They may have an exemption (like my employer does) on P11Ds. If so and if they have to fill one out for you they then have to do it for every employee and each employee then need to declare on tax return. Which is a pain for them.

benpinnick

Ask your employer to put it on your P11d. This will:

1. Defer the payment of the monies you owe across 12 months (you'll pay it in tax next year).
2. Reduce the amount you have to pay to only your taxable amount on the 255 - which will be 25% to 40% (i.e. £64 - £100 net cost to you)
3. Finally, the amount they should charge you is actually 25% of the amount they paid + VAT, which would be £249.75, for what its worth.

Good luck!

MacMonsterUk

Yes correct. However they must do this by filling out a P11D form. They may have an exemption (like my employer does) on P11Ds. If so and if they have to fill one out for you they then have to do it for every employee and each employee then need to declare on tax return. Which is a pain for them.

I already have a p11d for a healthcare benefit so it wouldn't be a big deal.

sketchley

MacMonsterUk wrote:

It wasn't done through cyclescheme - my employer manages it all themselves which had the advantage of not being tied to a particular retailer.

So far I'm thinking about suggesting the 'third party route'. There's a chance they might go for it.

I don't know if that is "legal" or would result in a taxable benefit to you anyway. But, I cannot see why not. They can sell it to who ever they choose. They could even flog it on ebay to random person. The purchaser would not be liable for tax even if they got a bargain. Take some legal / tax advice beforehand and don't take my word on it.

MacMonsterUk

Thanks for all the advice. I think that there are two options to persue:

1. Go for the transfer of ownership and treat as a taxable benefit

or

2. Let my employer keep the bike and suggest they attempt to sell it. I know someone that would be interested in buying and might be amenable to loaning the bike to me now and again (or every time I want to use it)

I'll update this thread once I have an answer as I'm sure there must be other people in this situation.

shouldbeinbed

1st question: does the contract stipulate a loan or a hire period? You mention both in different posts. If its a C2W scheme & by reading later posts it is a hire payment, not a loan repayment. So the bike is theirs to ask/do what they choose.

So if I've got it right, you paid your hire charge to employer May 10 to May 11 then stopped paying them, but kept the bike. In May 11, you weren't asked to return the bike to them or asked for a Fair Market Value payment to purchase it effectively as a second hand bike to assume full ownership of it yourself.

C2W is invariably run as fixed term hire followed by return or purchase of the bike by the employee and invariably the FMV figure is never explicitly stated at the outset, it is for employer & employee to sort out at the end of the hire period. I bet if you read the contract you signed there will be reference to this or pointing you to the generic T&C's of the scheme provider they based theirs on.

I'd also suggest they will argue this is a longstanding Govt/HMRC scheme which is pretty self explanatory and that there's plenty of info out there that you could have looked at & (as with ~everything in law) ignorance is no defence.

I note it says you should return the bike & you've not quoted anything about them offering it to you at this point. Assuming you kept it, you could be thumped with breach of contract/technically theft. 4 months from May 11 to now is 1/3 of the year. Assuming you've held onto the bike are they asking you for what should have been the hire cost for that extra period and telling you the bike will then be signed over to your ownership? In which case you'd effectively be getting the bike for free as they could charge you for the extended hire & still demand the bike back as their property?

FMV used to usually end up at a nominal figure (5% of purchase price was common) but HMRC clamped down on that before May 10 and started insisting on a true reflection of the 2nd hand value, 25% being another usual figure subsequently, so I fear you're going to be on dodgy ground arguing the toss.
Unless your contract specifically gifted the bike to you at the end of the hire period - which I strongly suspect HMRC would come down on very quickly or you agreed an overpayment on your monthly hire figure between May 10 & 11 to pay off a predetermined FMV in advance, again I suspect Mr Taxman would take a dim view of that.

It sounds like you've just found out that your scheme is exactly like every other one with the exception that you've had several months free use of what is effectively someone elses bike.

benpinnick

MacMonsterUk wrote:

Thanks for all the advice. I think that there are two options to persue:

1. Go for the transfer of ownership and treat as a taxable benefit

or

2. Let my employer keep the bike and suggest they attempt to sell it. I know someone that would be interested in buying and might be amenable to loaning the bike to me now and again (or every time I want to use it)

I'll update this thread once I have an answer as I'm sure there must be other people in this situation.

You also have a third option which is to ask your employer to keep renting it to you for a nominal fee. HRMC guideline FMVs drop over time. Adding 18 months of use for say £20 would reduce the end cost enormously. No real advantage over p11d though.

bails87

benpinnick wrote:

MacMonsterUk wrote:

Thanks for all the advice. I think that there are two options to persue:

1. Go for the transfer of ownership and treat as a taxable benefit

or

2. Let my employer keep the bike and suggest they attempt to sell it. I know someone that would be interested in buying and might be amenable to loaning the bike to me now and again (or every time I want to use it)

I'll update this thread once I have an answer as I'm sure there must be other people in this situation.

You also have a third option which is to ask your employer to keep renting it to you for a nominal fee. HRMC guideline FMVs drop over time. Adding 18 months of use for say £20 would reduce the end cost enormously. No real advantage over p11d though.

No, the OP is leaving his job. Can't hire the bike off a company you don't work for.

benpinnick

shouldbeinbed
The HRMC published clarification on FMV in August of 2010. A bit harsh your post TBH. I think that this is a genuine issue the OP faces, and not one caused by his lack of diligence.

bails87

benpinnick wrote:

shouldbeinbed
The HRMC published clarification on FMV in August of 2010. A bit harsh your post TBH. I think that this is a genuine issue the OP faces, and not one caused by his lack of diligence.

If the bike is too expensive then he doesn't have to buy it.

benpinnick

bails87
Good point. Note to self, read post more carefully next time.

benpinnick

bails87 wrote:

benpinnick wrote:

shouldbeinbed
The HRMC published clarification on FMV in August of 2010. A bit harsh your post TBH. I think that this is a genuine issue the OP faces, and not one caused by his lack of diligence.

If the bike is too expensive then he doesn't have to buy it.

Thanks for this valuable insight.

bails87

benpinnick wrote:

bails87 wrote:

benpinnick wrote:

shouldbeinbed
The HRMC published clarification on FMV in August of 2010. A bit harsh your post TBH. I think that this is a genuine issue the OP faces, and not one caused by his lack of diligence.

If the bike is too expensive then he doesn't have to buy it.

Thanks for this valuable insight.

It's unfortunate but true though. It's the company's bike. He hasn't agreed a price beforehand and then been screwed over when they asked for more. The P11D route seems like the best option, otherwise I'd just pay the £250.

estampida

do you not stand on the pedals...... :roll:

sketchley

bails87 wrote:

benpinnick wrote:

bails87 wrote:

benpinnick wrote:

shouldbeinbed
The HRMC published clarification on FMV in August of 2010. A bit harsh your post TBH. I think that this is a genuine issue the OP faces, and not one caused by his lack of diligence.

If the bike is too expensive then he doesn't have to buy it.

Thanks for this valuable insight.

It's unfortunate but true though. It's the company's bike. He hasn't agreed a price beforehand and then been screwed over when they asked for more. The P11D route seems like the best option, otherwise I'd just pay the £250.

Another option is to take pictures to show the bike is worth less than the FMV as calculated in the HMRC guidelines then pay what it is worth. All the guideline state are that HMRC will not question the FMV is it falls in line with the table. It doesn't mean it is the FMV of the bike.

For example 1 year old boardman hybrids are often on e-bay for £100 less than new. Which is a massive profit in terms on cycle2work just by getting the bike leaving it in a shed for 12 months then flogging it.

sketchley

shouldbeinbed wrote:

....
Unless your contract specifically gifted the bike to you at the end of the hire period - which I strongly suspect HMRC would come down on very quickly....

Yes they would as that would mark it it a hire purchase rather than a rental so wouldn't qualify for cycle2work tax break. HMRC / Cycle2work is very specific that there cannot be any contract obligation to sell, or right to purchase as part of the hire agreement. This is a separate transaction that can only be agreed at then end of the original hire term.

shouldbeinbed

benpinnick wrote:

shouldbeinbed
The HRMC published clarification on FMV in August of 2010. A bit harsh your post TBH. I think that this is a genuine issue the OP faces, and not one caused by his lack of diligence.

Fair do's on the official guidance but it wasn't an out of the blue change & had been in the offing for a while.

Edited that post to try clarify some of my assumptions too. I've not tried to be harsh for fun, just to try and see it through the bureaucratic eyes of the company, possibly realising a bit late they could on the wrong side of the taxman on this one.

joelsim

Not a massive profit. £900 - £480 - £255 = a bit of profit, and I'd be very surprised if it was 10% less.

It doesn mean that I could sell it and get a new one for no outlay though. A free bike every year.

alfablue

There wasn't actually any change in the law or the rules, merely some HMRC guidance; in theory the tax liability for a benefit in kind by virtue of have the bike for a price lower than fmv always applied. The only difference is that HMRC have said what they think fmv would be.

Anyway, simple thing is for your employer gives it to you and you pay 20%x£250 tax (or whatever rate you're on). I think you need to explain to your employer.

MacMonsterUk

Anyway, simple thing is for your employer gives it to you and you pay 20%x£250 tax (or whatever rate you're on). I think you need to explain to your employer.

Just done that and I think that's the way we're going to do it. I did suggest the third party option but he wasn't comfortable selling it for a price lower than market value. He didn't like my idea of holding a charity raffle with only one ticket either.

Still not that happy about it but effectively paying £98.90 is a lot better than £250.

alfablue

He didn't like my idea of holding a charity raffle with only one ticket either.

, well I think that is genius!