Cycle to Work - Maximum

[APK]

I prefer to take the word of HMRC rather than entering into any "I think you will find" contest.

Fair enough, but I can't find any reference to the figure being based on the "full" purchase price, perhaps you could show me?

I can only find : "In either case, as long as any payment that the employee makes for the cycle is equal to or more than the market value, there will be no tax charge under the employment income rules. If the employee pays less than market value, the difference will be taxable as employment income. "

So if an employee has already paid £500 towards the cost of a £1500 bike it could be argued that they have already paid more than the market value?

 

[lejogger]

Fair enough, but I can't find any reference to the figure being based on the "full" purchase price, perhaps you could show me?

I can only find : "In either case, as long as any payment that the employee makes for the cycle is equal to or more than the market value, there will be no tax charge under the employment income rules. If the employee pays less than market value, the difference will be taxable as employment income. "

So if an employee has already paid £500 towards the cost of a £1500 bike it could be argued that they have already paid more than the market value?

I run our C2W scheme, so consider myself to have a decent knowledge of the workings. We wouldn't let our employees go over the £1k in the first place, but my opinion in this instance would be that:

If you have made a £500 contribution on top of your £1k voucher then this should sit outside of any tax or disposal fee payment.

The only element that you are receiving a tax break on is the £1k salary deduction. The only inforamation your employer will hold regarding your bike will be the £1k that they are recovering from you, so if at the end of the day you are gifted the bike as a benefit in kind after 12 months, or you pay some element of a fee, the P11d will only show the value of £250 minus any final payment to your employer to be taxed.

If you are taxed on 25% of the whole bike then you're paying tax for a benefit value that you haven't received. That £500 has already been taxed as earnings when you earned it, and it's not included in your salary dedution that is making you the savings in the first place.


EDIT: As previously stated however, this is based on the company allowing you to take ownership of the bike at the end of the hire period.

 

[APK]

Thanks Lejogger, that would be my understanding, I can't see how you would be expected to make a payment based on the element you paid for in full yourself, obviously if you do "hand the bike back" then you would presumably lose your share, unless the company was kind, and returned anything they received over the 25% amount of the C2W balance.

 

[subaqua]

I run our C2W scheme, so consider myself to have a decent knowledge of the workings. <SNIP>
EDIT: As previously stated however, this is based on the company allowing you to take ownership of the bike at the end of the hire period.

then you will also be aware that if there is an inmplied " you can keep the bike" then the scheme is operating outside of its remit and the tax benefits do not apply.

Norm highlighted this in one of the namy c2w threads. sasdly being one of the few cyclists on site and my employer opening up a new scheme ( Halfords FFS !!) I am getting loads of questions so have tried to learn as much as i can.

I think the scheme is a waste of money and time especially now the "fair market value " has been determined.

Glad I bought my own bike(s)on a 0% credit card deal.

 

[Norm]

Fair enough, but I can't find any reference to the figure being based on the "full" purchase price, perhaps you could show me?

I have already quoted the relevant text.

The original price of the cycle is the price for which it was on sale as new at the time when it was first provided to the employee.

I can only find : "In either case, as long as any payment that the employee makes for the cycle is equal to or more than the market value, there will be no tax charge under the employment income rules. If the employee pays less than market value, the difference will be taxable as employment income. "

So if an employee has already paid £500 towards the cost of a £1500 bike it could be argued that they have already paid more than the market value?

This relates to the market value at the time of the sale, not at the time of the purchase, so it's irrelevant.

The guidelines for the simplified valuation themselves refer to the "Original Price" of the bike, not the amount which the employer pays for the bike or the value of the voucher.

The only element that you are receiving a tax break on is the £1k salary deduction. The only inforamation your employer will hold regarding your bike will be the £1k that they are recovering from you, so if at the end of the day you are gifted the bike as a benefit in kind after 12 months, or you pay some element of a fee, the P11d will only show the value of £250 minus any final payment to your employer to be taxed.

The terminology I have highlighted there makes me concerned, as the bike is not the employees until the employee has paid for it.

That aside, I'd be saddened (but not that surprised) if an employer was as slack as you suggest in tracking their assets.

However, whilst what you say might be the way that one particular scheme has been implemented, the inability to track the "original price" of the bike doesn't excuse the employers from correctly applying the taxable charges. That would be no different to telling HMRC that they didn't know what their employees earned last month so they guessed at the PAYE / NI deductions.

Subaqua, the scheme is still, IMO, worthwhile and can get you savings of 25%-30% on a new bike. However, with all the hassle and uncertainty, and deals available to cash buyers, I can understand why many don't bother. However, drop me a line if I can help in any way.

 

[lejogger]

then you will also be aware that if there is an inmplied " you can keep the bike" then the scheme is operating outside of its remit and the tax benefits do not apply.

Norm highlighted this in one of the namy c2w threads. sasdly being one of the few cyclists on site and my employer opening up a new scheme ( Halfords FFS !!) I am getting loads of questions so have tried to learn as much as i can.

I think the scheme is a waste of money and time especially now the "fair market value " has been determined.

Glad I bought my own bike(s)on a 0% credit card deal.

I think we all know that the liklihood of an employer wishing to have the cycles returned to them after the hire agreement is incredibly low. Realistically if an employee entered the scheme with the view that they were unlikely to be able to take ownership after the hire period then there would be very few participants.

Yes there's a lot of red tape and wordy legality, but essentially it's a fantastic scheme designed to increase the health of your workforce, reduce your carbon footprint, and free up traffic and parking congestion around your sites. Employers doing all they can to make this scheme attractive to staff can only be a good thing.

The scheme is a long way short of a waste of money. The fair market value has not changed anything if the employer deals with it sensibly. We have moved from a nominal 5% charge (£50 on a £1k bike) to donating the bike as a benefit in kind. Tax on the residual 25% value for a standard taxpayer will be in the region of £50 knocked off your tax code. It makes it even better value.

Also, the Halfords scheme is actually excellent IMO. They don't pocket any of the disposal fees like a lot of the schemes... they're happy to just get customers through the doors. They have a special order line to source a huge variety of different cycles that you wouldn't get in store, and the Boardman range is fantastic value for money.

 

[lejogger]

The terminology I have highlighted there makes me concerned, as the bike is not the employees until the employee has paid for it.

A silly slip in wording. Obviously the bike is not 'yours' until the completion of the scheme, but may I suggest a bit pedantic to pick me up on it. Employers do not enter the scheme to be able to raise a fleet of bicycles for their own collection. We all know that in the real world the whole process of salary sacrifice and control accounts is a pain in the balls for employers and the sooner ownership can be transferred the better.

That aside, I'd be saddened (but not that surprised) if an employer was as slack as you suggest in tracking their assets.

Irrelevant. The employer has full records of outstanding debtors to the salary sacrifice scheme. Should their employee end then the balance is merely taken from their final pay packet.

However, whilst what you say might be the way that one particular scheme has been implemented, the inability to track the "original price" of the bike doesn't excuse the employers from correctly applying the taxable charges. That would be no different to telling HMRC that they didn't know what their employees earned last month so they guessed at the PAYE / NI deductions.

The tax is paid on the residual value of the voucher not the original price. If the staff member wished to appeal to the HMRC that his bike had depriciated to a lower value then he can with the correct evidence. No employer with more than 2 employees on the scheme is going to insist on verifying the condition of all bikes before filling in the P11d forms, so it will go on the HMRC table of valuation in line with the salary sacrifice.

Subaqua, the scheme is still, IMO, worthwhile and can get you savings of 25%-30% on a new bike. However, with all the hassle and uncertainty, and deals available to cash buyers, I can understand why many don't bother. However, drop me a line if I can help in any way.

Yes I agree.. definitely worthwhile, but savings of much more than 30% can be made. Over 50% if you are a higher rate tax payer, the scheme is implemented sympathetically with regards to the final payment, and the organisation is able to reclaim the VAT on the bike.

 

[subaqua]

I think we all know that the liklihood of an employer wishing to have the cycles returned to them after the hire agreement is incredibly low. Realistically if an employee entered the scheme with the view that they were unlikely to be able to take ownership after the hire period then there would be very few participants.

Yes there's a lot of red tape and wordy legality, but essentially it's a fantastic scheme designed to increase the health of your workforce, reduce your carbon footprint, and free up traffic and parking congestion around your sites. Employers doing all they can to make this scheme attractive to staff can only be a good thing.

The scheme is a long way short of a waste of money. The fair market value has not changed anything if the employer deals with it sensibly. We have moved from a nominal 5% charge (£50 on a £1k bike) to donating the bike as a benefit in kind. Tax on the residual 25% value for a standard taxpayer will be in the region of £50 knocked off your tax code. It makes it even better value.

Also, the Halfords scheme is actually excellent IMO. They don't pocket any of the disposal fees like a lot of the schemes... they're happy to just get customers through the doors. They have a special order line to source a huge variety of different cycles that you wouldn't get in store, and the Boardman range is fantastic value for money.

the site i am on doesn't have much congestion. sadly it also won't allow bikes onto the site we have to leave them just outside as will the general public when the park opens on 27th July 2012.

I asked all those who asked me about the scheme how often they would use the bike to ride to work. i don't think the answers i got will surprise people. 100% said they were not using it to get a bike4 for coming to work on but for getting a bike for personal use.

i wonder how many halfords bikes will get used once or twice as they haven't been set up properly and people think cyclings crap rathber than the cycle the salesman at halfords advised steered them towards .
they may be able to source a huge range but if they can't set em up properly whats the point.

 

[lejogger]

the site i am on doesn't have much congestion. sadly it also won't allow bikes onto the site we have to leave them just outside as will the general public when the park opens on 27th July 2012.

I asked all those who asked me about the scheme how often they would use the bike to ride to work. i don't think the answers i got will surprise people. 100% said they were not using it to get a bike4 for coming to work on but for getting a bike for personal use.

i wonder how many halfords bikes will get used once or twice as they haven't been set up properly and people think cyclings crap rathber than the cycle the salesman at halfords advised steered them towards .
they may be able to source a huge range but if they can't set em up properly whats the point.

I sympathise with this - If you're going to run a scheme, you should at least make sure that staff have somewhere to store their bikes safely, and get showered and changed.

As for using the bike to cycle to work, there are many opinions on this. Yes the bike should be used mainly for this purpose during the hire period, but as long as the staff make some committment to it, even if it just a few weeks in the lighter months, then anything is better than nothing, and if they're getting fit and healthy away from the workplace as well, improving their concentration and motivation levels for when they are in work, then what's the harm if they don't slog it in in the snow and hail?

Halfords is a tricky one. I know many people - myself included who have had very good service from very good mechanics working there. I have also heard that people haven't had such good experiences. And while this can be said of the majority of companies, from large multinationals, to your LBS, it shouldn't ever be the luck of the draw regarding getting a safe reliable bike to ride. I believe they're getting better. I haven't had any problems from them with 2 years of C2W schemes and over 100 staff getting bikes from them... but I do acknowledge that they're probably some distance away from where they should be

 

[Norm]

A silly slip in wording. Obviously the bike is not 'yours' until the completion of the scheme, but may I suggest a bit pedantic to pick me up on it. Employers do not enter the scheme to be able to raise a fleet of bicycles for their own collection. We all know that in the real world the whole process of salary sacrifice and control accounts is a pain in the balls for employers and the sooner ownership can be transferred the better.

Which is why I only said it concerns me. Unfortunately, whilst it might have been a silly slip in your post, many other people don't have your level of understanding of the scheme and consider the bike to be theirs from the point that they collect it.

Irrelevant. The employer has full records of outstanding debtors to the salary sacrifice scheme. Should their employee end then the balance is merely taken from their final pay packet.

Irrelevant with relation to the debtors, maybe, but very relevant in relation to control of the company's assets.

Which is why I said "as slack as you suggest in tracking their assets" rather than "as slack as you suggest in controlling their debtor balances".

The tax is paid on the residual value of the voucher not the original price.

Whilst the other points are semantics and pedantics, this is a fundamental issue.

You say this despite, as I have already quoted twice, the HMRC saying that the Original Price should be used when relying on the simplified valuation method and the table of percentages actually having two headings of "Original price of the cycle less than £500" and "Original price £500+".

Not only is there no mention anywhere on the HMRC site of the value of the voucher but many schemes don't even use a voucher.

Yes I agree.. definitely worthwhile, but savings of much more than 30% can be made. Over 50% if you are a higher rate tax payer, the scheme is implemented sympathetically with regards to the final payment, and the organisation is able to reclaim the VAT on the bike.

It is indeed possible, with a very friendly employer, to get to that sort of number. However, most employers aren't that friendly and I wouldn't want to set an expectation that every scheme will save you that sort of figure.

 

[APK]

It seems a shame that the C2W scheme is potentially so complicated, and costly, surely a far better way to encourage people onto bikes for health/congestion/pollution reasons would be simply to make bikes under £1000 vat free, then everyone could take part, whether employed, self employed, unemployed or retired?

 

[Norm]

It seems a shame that the C2W scheme is potentially so complicated, and costly, surely a far better way to encourage people onto bikes for health/congestion/pollution reasons would be simply to make bikes under £1000 vat free, then everyone could take part, whether employed, self employed, unemployed or retired?

This is true, unfortunately.

For those who don't pay higher rate tax), the savings on most schemes would be less than the 16.7% reduction if VAT was removed.

 

[lejogger]

Which is why I only said it concerns me. Unfortunately, whilst it might have been a silly slip in your post, many other people don't have your level of understanding of the scheme and consider the bike to be theirs from the point that they collect it.

I'm not looking to provoke, or cause an argument... and the last thing I would want to do is give false hope to people expecting to 'buy' a bike rather than 'hire' a bike, but are there any actual recorded incidents where all things being equal, people have joined a cycle to work scheme but then after their final payment been prevented from taking ownership by their employers?
I run our scheme on the understanding that the employees taking ownership is a natural progression of the scheme and can see no reason why the employee should ever not do so should they wish to.
So while I understand the importance of ensuring people are aware of the potential risks, it seems that there is also an unnecessary level of scaremongering which is putting people off for no good reason.

Irrelevant with relation to the debtors, maybe, but very relevant in relation to control of the company's assets.
Which is why I said "as slack as you suggest in tracking their assets" rather than "as slack as you suggest in controlling their debtor balances".

The difference of which is important to whom? C2W bikes are not assets. They depreciate at such a rate that there is no point considering them such. The salary sacrifice, managed by control accounts ensure that the full value paid out is returned, so there is no need for them to be logged as assets, especially considering they are paid for and then recovered during the course of one financial year.

Whilst the other points are semantics and pedantics, this is a fundamental issue.

You say this despite, as I have already quoted twice, the HMRC saying that the Original Price should be used when relying on the simplified valuation method and the table of percentages actually having two headings of "Original price of the cycle less than £500" and "Original price £500+".

Not only is there no mention anywhere on the HMRC site of the value of the voucher but many schemes don't even use a voucher.

I suppose this is a slightly moot point as our scheme would never let the employee purchase a bike that is more than £1k anyway - despite this being the whole point of this thread! But what I said still stands. Tax IS paid based on the residual value... however the residual value IS calculated based on the original price of the cycle. This however, is on the understanding that the maximum value of the cycle is £1k. I don't believe there is a clear answer on what should happen should the value be greater than this.
So while you are totally correct in your quoting of what the HMRC guidelines say, it doesn't change the fact that the guidelines should probably be altered to accomodate what happens should an employee manage to get a more expensive bicycle, and also the fact that the HMRC guidelines are essentially that... guidelines, and that any decently structured explanation in the event of a tax investigation should clear anyone of excess tax charges in the same way that a person with a £1000 bike that had depreciated to a lower level than £250 after a year of cycling can argue a lesser final payment.

It is indeed possible, with a very friendly employer, to get to that sort of number. However, most employers aren't that friendly and I wouldn't want to set an expectation that every scheme will save you that sort of figure.

I've not indicated that every scheme will - but at the same time there's no point continuing with the 'scheme-bashing' that in my opinion is totally unwarranted as 30% is probably the minimum that people can expect to save if their company operates one of the better schemes. Unfortunately most organisations are persuaded by the sales pitches of these smaller private sector organisations who sell the employer benefits over the employee benefits, causing them to forget that these companies need to operate at a profit, which comes right out of the savings the employees could be making. Running your own scheme, or going with a large national company happy with the increase in customers through the doors is by far the best option.

 

[lejogger]

This is true, unfortunately.

For those who don't pay higher rate tax), the savings on most schemes would be less than the 16.7% reduction if VAT was removed.

My company doesn't reclaim VAT, but the standard rate tax payers still save in the region of 30%... I can work out the exact figures if necessary, but 16.7% is nowhere near correct.

This constant putting down of the scheme is very irresponsible

 

[Norm]

Last one from me, I'm repeating myself and that's breaking my #1 rule.

I'm not looking to provoke, or cause an argument... and the last thing I would want to do is give false hope to people expecting to 'buy' a bike rather than 'hire' a bike, but are there any actual recorded incidents where all things being equal, people have joined a cycle to work scheme but then after their final payment been prevented from taking ownership by their employers?
I run our scheme on the understanding that the employees taking ownership is a natural progression of the scheme and can see no reason why the employee should ever not do so should they wish to.
So while I understand the importance of ensuring people are aware of the potential risks, it seems that there is also an unnecessary level of scaremongering which is putting people off for no good reason.

Nothing to do with scaremongering but, as I said, many people don't have your level of understanding.

What you said was wrong, I pointed that out, you agreed and yet you are still blathering on about it... whilst claiming that you aren't looking to cause an argument.

The difference of which is important to whom? C2W bikes are not assets. They depreciate at such a rate that there is no point considering them such. The salary sacrifice, managed by control accounts ensure that the full value paid out is returned, so there is no need for them to be logged as assets, especially considering they are paid for and then recovered during the course of one financial year.

The difference is important to the tax man. By your own admission, the simplified valuation method provides a residual value based on the original price of the bikes. The onus is, therefore, on the employers to ensure their systems record the original price to set the correct residual value.

I suppose this is a slightly moot point as our scheme would never let the employee purchase a bike that is more than £1k anyway - despite this being the whole point of this thread! But what I said still stands. Tax IS paid based on the residual value... however the residual value IS calculated based on the original price of the cycle. This however, is on the understanding that the maximum value of the cycle is £1k. I don't believe there is a clear answer on what should happen should the value be greater than this.
So while you are totally correct in your quoting of what the HMRC guidelines say, it doesn't change the fact that the guidelines should probably be altered to accomodate what happens should an employee manage to get a more expensive bicycle, and also the fact that the HMRC guidelines are essentially that... guidelines, and that any decently structured explanation in the event of a tax investigation should clear anyone of excess tax charges in the same way that a person with a £1000 bike that had depreciated to a lower level than £250 after a year of cycling can argue a lesser final payment.

A change of tack and a straw man. My comment, which you originally contested, was that the valuation should be based on the original price.

I agree that there should be ways that the tax liability could be reduced but EIM21667a is not a set of guidelines, it is the HMRC laying out the way that the simplified valuation should be applied if it is appropriate.

I've not indicated that every scheme will - but at the same time there's no point continuing with the 'scheme-bashing' that in my opinion is totally unwarranted as 30% is probably the minimum that people can expect to save if their company operates one of the better schemes. Unfortunately most organisations are persuaded by the sales pitches of these smaller private sector organisations who sell the employer benefits over the employee benefits, causing them to forget that these companies need to operate at a profit, which comes right out of the savings the employees could be making. Running your own scheme, or going with a large national company happy with the increase in customers through the doors is by far the best option.

With tax savings of 20% and employees NI savings of 11% / 12%, less a tax charge on the residual value of 3.6%, I would suggest the best schemes would struggle to 30% for most people, without potentially dubious practices relating to the VAT. But, your non-provocation veneer wears ever-thinner as I suggested savings of 25%-30% were to be expected and you argue that "30% is "probably the minimum". Agreeing with what I wrote and yet still producing a diatribe to do so is a tad unusual.

Accusations of scheme bashing are also bizarre. Your previous post agreed with me when I said they were worthwhile, so how you feel I have gone from saying that they are worthwhile (which is what I did) to scheme bashing (which isn't what I've done anywhere) is a bit of a mystery.

In summary, you agree that what I originally said (the simplified valuation is based on the original price) was correct and the rest is, well, apparently not being provocative or argumentative but I'm not sure what else it could be.

My company doesn't reclaim VAT, but the standard rate tax payers still save in the region of 30%... I can work out the exact figures if necessary, but 16.7% is nowhere near correct.

This constant putting down of the scheme is very irresponsible

16.7% is exactly correct to calculate the effect of removing the VAT.