For those caught by the Cycle to Work clarification

[pshore]

There IS another way:

I was one of those people that had a Cycle to Work deal running and mid way the HMRC clarified the final value fee. For my bike it was in the worst case 25%. My scheme administrator - CycleScheme - were then asking me for 25% instead of the expected 5% at the end of year one to own my bike. Most people just paid the easy 7% option and extended their hire to four years.

I didn't want the uncertainty of a four year deal, but thought asking for 25% was extortion. I wanted to give CycleScheme 5% and pay tax on the remaining 20% as allowed in the HMRC rule clarification and wrote to them. They refused my terms with a poor excuse - something like being too complicated to administer.

I was sent a number of threatening letters demanding the money or the bike back. The last one was from the Dept Recovery Department threatening a bad credit record and costs for bailiffs. I sat tight, wrote to them saying they were threatening, extorting money, and suggested they accept the 5% they were expecting or see me in court. It worked, the next thing I got was an invoice.

The cheeky blighters still added VAT to the 5%, but the 5% was based on the price I paid including VAT. I decided to pay up.

Additionally, I still owe the tax man at this stage but will sort that.

What a great way to buy a bike. Hmmm. Nice company CycleScheme eh ?


PS. Thanks to Norm who in an older thread helped me understand the rules.

 

[fossyant]

That's a lot of hassle you don't need. Fortunately mine finished before the new valuation came in. I won't be using the scheme again though !

 

[400bhp]

That's a lot of hassle you don't need. Fortunately mine finished before the new valuation came in. I won't be using the scheme again though !

Why?

(see other thread - end payment can be classed as a b.i.k so you only pay tax on the £250 rather than the £250 itself).

 

[Chrismawa]

Can someone explain this new valuation please? As recently I've been thinking of using the scheme when I get a permanent contract in a couple of months.

 

[Norm]

That is not right. It should either be x% of the gross purchase price (VAT Inclusive) or x% + VAT of the net purchase price (VAT Ex)

They can charge what they like and they have properly accounted for the VAT, but it will affect the tax liability.

The good(-ish) news for the op is that you can include the VAT in the cost price, so your BIK is "only" 19% as you paid 6% of the purchase price.

 

[pshore]

Can someone explain this new valuation please? As recently I've been thinking of using the scheme when I get a permanent contract in a couple of months.

Errrm, eerrrm.... I am trying to think about how to explain how you buy your bike and for how much for. It's quite hard, and I can't find a non-commercial or independent website that explains the scheme.

The best I can do is the road.cc news article but it won't give you numbers.

I think the best thing I can say is: think of it as a rental scheme, not a bicycle purchase.

 

[classic33]

I'd have thought that your final payment was agreed at the time you "aquired" the bike. You had at that point entered into a legal agreement, had you been told that the terms may be changed part way through, they may have a case(in my opinion).

Wouldn't you be covered by the supply of goods & services?

 

[Norm]

I'd have thought that your final payment was agreed at the time you "aquired" the bike. You had at that point entered into a legal agreement...

And still this rubbish infests the boards.

If the final payment is agreed at the time that the bike is acquired, it is a hire purchase scheme, not a rental scheme, and you cannot benefit from the C2W tax advantages.

 

[jonny jeez]

One thing is for sure, the C2w Scheme is very poorly defined to the average man in the street. If it weren't for the likes of Norm I'd have no clue where to start, how to facilitate or what the actual benifit to myself and the employer would be.

I couldnt find a "single" source of info for the average Joe.

 

[Riverman]

And all that admin work probably cost about the same price as the bike in the end I imagine.

 

[pshore]

One thing is for sure, the C2w Scheme is very poorly defined to the average man in the street.

Yep. For most it is too complicated. It is quite a complex financial transaction with many pitfalls. I am not surprised your employer has to be registered with the FSA over £1000.

No wonder businesses complain about too much red tape.

 

[pshore]

That is not right. It should either be x% of the gross purchase price (VAT Inclusive) or x% + VAT of the net purchase price (VAT Ex). See EIM21667a and scroll down to
"It is acceptable to use the VAT exclusive amount in calculating the original price of the cycle. However, where the valuation percentage is applied to a VAT exclusive amount, VAT will need to be added to the result in order to arrive at the acceptable market value. This must be done regardless of whether or not the employer is VAT-registered. For example, if the original price net of VAT was £400, then whilst the VAT rate is 17.5%, the acceptable` market value at 2 years old will be £61. ((£400 x 13%) + (VAT at 17.5% x £52) = £52 + £9 = £61)."

Boy do I know those rules inside out now. I was quoting them back to CycleScheme as part of my case.

 

[jonny jeez]

Yep. For most it is too complicated. It is quite a complex financial transaction with many pitfalls. I am not surprised your employer has to be registered with the FSA over £1000.

No wonder businesses complain about too much red tape.

The bottom line is it's a great scheme and the intentions are well aimed. Unfortunatley.. I suspect that, because of the amount of people abusing the system the govnt has had to install far to many hoops to jump through, making it a complete mind-f**k to wade through

Its possible that we (the population) have shot ourselves in the foot here

 

[Tynan]

people getting bike after bike after bike?

you'd think HMRC would be working very hard on hunting down people that avoid tax or cheat tax rather than finessing tax on minor transactions like this where the ethos of the scheme was always to let people buy a bike to commute on from their gross salary

 

[lejogger]

Dammit, another C2W discussion and I'm late because of playing golf last night. Stupid other hobbies

PShore - remember that the 25% (if enforced) is still only a guideline. HMRC have said that this is what they expect the bike to be valued at after 12 months, but if you pay less than this, as long as you can prove that the cycle is only worth the amount you paid then there's nothing they can do. This would involve finding evidence of similar bikes being sold for similar amounts, independant valuations etc. So it would be useful if you've had an off... not so much if you've looked after the cycle.
That's only the HMRC aspect though. With Cyclescheme, the problem is that the bike is their property and they can therefore charge you whatever they want for the cycle. I'm certain that at no point did you or they sign anything saying that once the hire period was over they would definitely sell you the bike at an agreed rate. I don't support their actions in chasing you for payment or demanding the bike back in the slightest, but in reality they are quite within their rights - and you've probably been lucky to get away with it.