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HMRC tightens up Cycle to Work Scheme

(32 posts)
  • Started 13 years ago by chdot
  • Latest reply from Rabid Hamster

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12

  1. chdot
    Admin

    For years the bike to work/salary sacrifice scheme has largely worked on the basis of assumptions and blind eyes.

    Initial assertions were that people could save 50% (with "up to" added fairly quickly). That figures was only remotely true for high rate taxpayers (i.e. not most people).

    There also had to be a willingness for employers to a) sell and b) for not much money.

    The 'practice' has been for most employers to ask for a nominal 5% - in spite of the official guidance (9.3) "We therefore advise employers that they can indicate in accompanying literature that ex-rental equipment may be sold for market value but they should make it clear that they cannot commit themselves to doing so"

    Now the Revenue is saying "market value" is 25% - which for a year old bike still seems cheap, but throws the whole economics of the Scheme up in the air - for companies, employees and bike shops.

    Lots more here - http://www.bikebiz.com/news/32690/HMRC-spanner-thrown-into-wheel-of-Cycle-to-Work-Scheme

    Including -

    "

    "From my reading of [HMRC's rule change] the employer can sell the bike to the employee for whatever they like, ie £5. However the difference between the amount that the employee pays for the bike and HMRC’s valuation of the bike would become a benefit in kind and therefore taxable.

    "

    It's not clear whether Cameron & Co. will turn a blind eye to this new twist, they may need any money saved - even if it's at the expense of what was quite an effective way of getting more people cycling.

    No doubt the HMRC was swayed by stories of people buying serious off-road bikes that were unlikely to be used for commuting...

    Posted 13 years ago #

  2. steveo
    Member

    I paid £30 for my £700 road bike last year and i was looking forward to paying about the same for my new mtb. But at 25% that's £250 it doesn't make the scheme all that competitive to just getting a bike in the sale tbh. I just hope they don't enforce it before this bike is paid for next year.

    Didn't intend to do it for a third year running that is kinda taking the proverbial but if i was i doubt i'd bother at 25%

    For reference both my bikes have done far more miles as commuter fodder than for "recreational" use. I did over 3500 miles on the roady last year and 90% was between home and the office with some extended routes on the way way home. Since the roady has been off the road since june my new mtb has been my main ride and its done a good few hundred miles just commuting.

    Posted 13 years ago #

  3. SRD
    Moderator

    "No doubt the HMRC was swayed by stories of people buying serious off-road bikes that were unlikely to be used for commuting..."

    Like my colleague who when I said 'so I'll be seeing you in the bike shed tomorrow then' looked at me in total horror and said 'no way I'm cycling to work'. and this is a very fit, active person who walks in everyday...

    Posted 13 years ago #

  4. gembo
    Member

    as I understood the previous conditions the principal use of the bicycle was to be commuting to work, thus if it sat in the garage and didn't go anywhere else then that might be Ok but as SRD says if you bought a high end MTB not so koshe. In the very first scheme EBC were allowing clothing to be purchased which is probably not kosher either as the scheme is a lease scheme with option to pay at end

    when I was a bus traveller my employer paid my buspass - nice for me and saved them money as buying tickets every day would be more expensive. After a few years I received a tax bill. Reasoning being same as in new proposed bike scheme where we are liable to pay tax on the perk at the end.

    I also get taxed on the 25p per mile paid for work related journeys (but only on the 5p over the 20p).

    There is a logic to it all

    Posted 13 years ago #

  5. chdot
    Admin

    "In the very first scheme EBC were allowing clothing to be purchased which is probably not kosher either"

    Depends whether it was high fashion vanity gear, or 'safety', helmets etc. - which I assume would include decent waterproofs.

    Posted 13 years ago #

  6. spytfyre
    Member

    Mate of mine did that too, £1000 boardman MTB and then went and bought better wheels and tyres. It hasn't been in the bike shed once.
    I got my commute hybrid last year and was thinking of going for an MTB next year so there would be a year off but if these rules came in I would definitely think twice

    Posted 13 years ago #

  7. Kim
    Member

    It is worth reading the details of that article,

    Quote

    However, not all bike shops think the scheme is dead in the water.

    One said: "From my reading of [HMRC's rule change] the employer can sell the bike to the employee for whatever they like, ie £5. However the difference between the amount that the employee pays for the bike and HMRC’s valuation of the bike would become a benefit in kind and therefore taxable.

    "So £1000 bike (£850 ex vat): HMRC’s valuation £250

    "Employee pays £5 for the bike, and Tax/NI on £245 (£54 Tax + £25NI) So in effect pays a final payment of £84.

    "This is still a massive saving."

    CTC Senior Technical Officer Chris Juden also agrees that there are still signifant savings to be made:

    "All that's happened is that where an employee might previously have made savings on 95 percent of the bike's value, one can now make the same savings on 'only' 75 percent of it. So the total savings, per bike, reduce to 79 percent of their former magnitude.

    "Here's my maths. The total savings comprise: (1) VAT at 17.5 percent on the price of a bike minus its residual value. What's left is the cost of the bike to the employer, on which can be reclaimed through salary sacrifice: (2) Income tax at 20 percent, (3) employee National Insurance at 11 percent, and (4) employer's NI at 12.8 percent. Taking a residual value of 5 percent those four factors combine to provide a total saving of 51 percent, or 41 percent if the employer trousers NI savings to offset administration costs. If the residual value must instead be 25 percent, these savings fall to 43 percent or 34 percent respectively. Not as high, but still very worthwhile.

    "Nobody really thinks a bike is worth only 5 percent of its purchase price after one year's riding to work. Even 25 percent is a steal, so I think we should be glad that HMRC have swept away a great big area of uncertainty that was putting off quite a lot of employers from getting into the scheme in the first place."

    /quote

    If you read to the end.

    Posted 13 years ago #

  8. steveo
    Member

    Perhaps but 30% is a saving easily made in the end of season sales, and you get a better choice of where to buy the bike from.

    Though worth remembering it is a way of getting cheap credit if don't want to pay up front for your bike.

    Ahh we didn't get our vat back which in some of the calculations is fair whack of saving, oddly around the 15% mark ;)

    Posted 13 years ago #

  9. PS
    Member

    My understanding of the bike to work scheme was that it was purposefully fairly loosley drafted as a way of encouraging people to cycle. So you could buy a bike and "safety equipment" under it. Now, I'm sure we could all make a good argument for what constitutes safety equipment...

    For my part, in addition to my bike I went for a really good cycle-specific windproof winter jacket, with some reflective trim - not a fluorescent hi-vis job, but it certainly protects me from cold weather, which might otherwise distract my attention from the road, and the trim makes it safer than cycling in a normal jacket.

    I've heard of one guy who bought a turbo trainer under the cycle scheme. He would argue that the fitter he is, the safer he is on the road... I like that argument, but I'm not sure what HMRC would have to say about it.

    Thinking about the bullet payment at the end of the year, it's not really in the interest of the employer to ask for anything more than a nominal amount. They don't want to get the bikes back, so why risk the employee saying "Tell you what, you can keep it..."?

    Posted 13 years ago #

  10. Arellcat
    Moderator

    Clearly it makes no sense for a hire scheme to require monthly payments over a period, together contrived to equal the retail price of a bike less taxes, and then to offer the product for sale at market value if the intention of the scheme from the outset is to facilitate said purchase. That the offer of purchase is restricted to "may offer for a notional sum" on the part of the employer is to prevent the benefit-in-kind regulation from cutting in. Make payments over 12 months, 18 months, 24 months, to more or less the value of the new bike, and then require the hirer to make a payment at market value? For anything that remotely kept its value, like a Brompton for instance, no-one would buy it, so to speak.

    The alternative would be to arrange the hire payments contrived as genuine hire, so that at the end of the term, any hypothetical offer made by the employer wishing to dispose of the item would not disadvantage the prospective purchaser. That would also, of course, run the risk of a hirer deciding not to accept such an offer and the employer then having to dispose of the item elsewhere.

    The issue about fair market value was quite obvious to me six years ago when a colleague and I were building a business case for a scheme.

    Some employees might reasonably have need for a mountain bike for their commute, if it involved trails, farm tracks or farmland perhaps. You cannot arbitrarily restrict the type of bike if the scheme is to be made available to everyone. That last point in fact is why there are also rumblings that the schemes could be entirely self-defeating because anyone receiving or close to the minimum wage is necessarily excluded if the hire payments bring their monthly salary below the minimum.

    Posted 13 years ago #

  11. SRD
    Moderator

    "anyone receiving the minimum wage is necessarily excluded."

    Don't understand why that would be so. As a student, and when earning minimum wage, I still had to pay tax and NI - including on scholarships. (to my mind this is bizarre - in canada we got credits each year per number of terms in university and tuition, which always equalled or surpassed any notional tax we might earn. indeed, I usually ended up getting money back, as low income earners got sales tax rebate too).

    Posted 13 years ago #

  12. chdot
    Admin

    "Don't understand why that would be so"

    It's one of the rules of the scheme.

    Might be a curious ruling in that person would be voluntarily asking for 'salary sacrifice', but the result would be pay below MW - which is illegal..!

    Posted 13 years ago #

  13. Arellcat
    Moderator

    One pays NI and IT on whatever salary one earns, even if that is the minimum. But a salary sacrifice arrangement means that the payments are deducted prior to one's employer paying the salary, so some low paid employees could have their gross salary reduced below the minimum, which is illegal.

    Posted 13 years ago #

  14. chdot
    Admin

    There you go SRD - two replies in seconds!

    Posted 13 years ago #

  15. chdot
    Admin

    Bad news for the Cycle to Work scheme | Helen Pidd | Environment | guardian.co.uk -

    http://www.guardian.co.uk/lifeandstyle/2010/aug/13/cycle-to-work-scheme-bargain-ends

    "Under the newly clarified rules, detailed here, I am going to have to pay quite a bit more. And so is anyone else partway through the scheme, as well as anyone who signs up in the future."

    If that is true, there will be a lot of unhappy people who've bought a bike in the last 12 months.

    Curiously HMRC differentiates between bikes which cost less/more than £500.

    "Acceptable disposal value percentage" (after 1 year) 18%/25%

    In addition there is some understanding of the value of the 'add-ons' -

    "In calculating the original price of the cycle, include safety equipment fitted to the cycle (such as lights and bells) but not safety equipment which would be worn by the cyclist (such as helmets or reflective clothing). Where used regularly for commuting and/or travel between workplaces, safety equipment worn by the cyclist is likely to have a market value that is lower than the table percentages for a cycle and cycle-based safety equipment."

    Then there's a whole of info on dealing with VAT.

    So clarification is messy!

    Comment on the Guardian story -

    "Oh what a petty penny-pinching move from the taxman. Especially when set against the no-strings wodges of cash handed over for the car scrappage scheme. I thought the idea was to encourage people onto bikes, not provide employment opportunities for out of work accountants. Bah."

    Posted 13 years ago #

  16. SRD
    Moderator

    chdot & arellcat, thanks for the explanation. To my mind it just highlights foolishness of the tax system & especially 'salary sacrifice' (which I use in several other schemes) - why not just let people write off a portion of the cost of the bike against their taxes? would make far more sense, and be more straightforward. Only negative is that you would lose the monthly payment angle, which is certainly one of the attractions of the bike scheme. But it would allow minimum wage earners to participate. How very silly to exclude them, presumably they also cannot take advantage of childcare vouchers??!!

    Posted 13 years ago #

  17. Kim
    Member

    The follow exclusions should been noted:

    Employees of charities, universities, the armed forces and many parts of the NHS are usually denied a VAT saving.

    Plus, if you don’t have a PAYE salary, you can’t take part in a Cycle To Work salary sacrifice scheme. The only bike saving for a self-employed person would be to buy a bike via the business and reclaim the VAT, if VAT registered that is.

    Posted 13 years ago #

  18. wee folding bike
    Member

    I got fed up waiting for the council to get it all sorted out and got a Pashley Roadster 26 Sovereign yesterday.

    It all works fine but I've tried to step through the frame a few times.

    Posted 13 years ago #

  19. gembo
    Member

    nice, the only other british made bike

    that was going to be my next one on the BIke Scheme. But might have to make do with converting my Crossraods from a Nexus 8 to a Sturmey Archer 3 speed.

    Posted 13 years ago #

  20. wee folding bike
    Member

    I got the wide range 5 speed. I haven't found a neutral spot yet but it's only done a couple of miles.

    Posted 13 years ago #

  21. Dave
    Member

    It always struck me as strange that the government could devise a scheme to benefit people who want to cycle to work, with the singular restriction that no benefit can actually arise at risk of the taxman's wrath!

    Would have been much simpler just to define the value in a bike purchased under the scheme as a specific exclusion to the regulations on benefit in kind.

    However, even if you end up paying back the full cost of the bike, we can still look at this as a straightforward way to get interest free credit (with no credit check!) for buying a bike.

    SWMBO is just going ahead with a new bike purchase in full recognition of the changes on this basis.

    Let's face it, if the government had instead announced interest free loans on bikes as an incentive to get people cycling, we'd all be in favour of it, right?

    Posted 13 years ago #

  22. Arellcat
    Moderator

    In some places, salary sacrifice replaced interest free loans. The problem occurs when those loans are capped at whatever the employer thinks is a reasonable amount to buy a commuting bike, regardless of any specific needs of the employee, such as foldingness, offroadness, or speedness.

    Posted 13 years ago #

  23. wee folding bike
    Member

    "nice, the only other british made bike"


    Yes, I put the Enigma Variations on my iPod specially.

    Elgar liked a bike.

    http://en.wikipedia.org/wiki/Edward_Elgar

    Posted 13 years ago #

  24. kaputnik
    Moderator

    got a Pashley Roadster 26 Sovereign yesterday

    Bootiful :) Although you may have to consider a change of moniker to Big Rigid Bike

    Posted 13 years ago #

  25. chdot
    Admin

    "A whale amongst minnows."

    Apparently.

    http://www.pashley.co.uk/products/roadster-sovereign.html

    Posted 13 years ago #

  26. wee folding bike
    Member

    That's the bigger version. I live in hope of Dorothy dropping a house on the Wicked Witch of the East so I got the smaller Roadster 26 Sovereign.

    http://www.pashley.co.uk/products/roadster-26.html

    I was going to use it for work tomorrow... but I see it's not going to rain so I might use the Brompton S2L-X.

    Decisions, decisions...

    Posted 13 years ago #

  27. steveo
    Member

    Seems work is going to own my mtb forever now, I actually wonder which way my company will jump they might just opt for the 25% and be done with the whole scheme.

    http://www.guardian.co.uk/money/blog/2010/aug/28/cycle-to-work-scheme

    Posted 13 years ago #

  28. gembo
    Member

    My tricross bike on the scheme which did 100 miles a week for two years has had three new wheels, several chains and cassettes, a new bottom bracket etc. I have spent way over the real price never mind the reduced price to keep it going. I would hope HMRC take this into account if they make the clawback retrospective.

    Posted 13 years ago #

  29. Greenroofer
    Member

    My employer (and kaputnik's too, I understand) told us on Friday that they had agreed with HMRC that this wasn't retrospective. I am one year into a three-year scheme, and am told that I won't have to pay anything at the end, but that next time I get a Bike to Work bike I will have to pay 12% of its value at the end of the three years.

    Not sure this is 'fair value' or not for a £700 bike that's been ridden all year for three years and covered 10,000 miles on the towpath in that time...

    Also, and picking on gembo's point, if it's had new chains, wheels, tyres and mudguards in that time, is it actually the same bike?

    Posted 13 years ago #

  30. kaputnik
    Moderator

    Humm. My £200 Halfords BSO was recently donated to TBS. I wonder what fair value they would want for it is? It's 3 year expiry is due in March. As Greenroofer points out, a lot of that bike wasn't the same as the one that I bought and the additions alone are worth substantially more than the purchase price.

    Posted 13 years ago #

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