For those caught by the Cycle to Work clarification

[lejogger]

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.

This totally depends on what scheme your company use. E.g. whether they run it themselves, or whether they use an external company, and which company it is.

Essentially, when the scheme started there were no rules as to what a bike is worth after the hire period has finished (usually 12 or 18 months). This meant that lots of schemes were charging the employee various amounts for the cycles to become their property at the end of the agreement. This ranged from 0% of the original purchase price upwards, but most common was about 5% or 10%.

To bring some clarity to the situation HMRC decided to bring out some guidelines in the form of a valuation table estimating the value of a cycle dependant on it's age and original purchase price. In the worst case, a 12 month old bike that cost £1k new was considered to be worth £250. (25%).

Now 25% is a lot different to 5% and because the rules changed with immediate effect, this left lots of people who originally thought they had signed up to paying 5% now facing a larger bill to own the bike.

Some employers handled this sympathetically. They still accepted the 5% or 10% and declared the difference as a benefit in kind requiring a nominal tax charge on the difference. Some even waived the purchase fee completely. Others gave you the opportunity to extend your hire agreement, so by the time you did take ownership, the value of the bike was nominal.

Schemes run by external companies would struggle to do this however as technically they cannot gift a benefit in kind because the gift would not be passing from employer to employee when it is the scheme provider not the employer who own the cycles.

 

[pshore]

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.

Even though I have ridden my bike a huge amount, I am still sure that it is worth more than 25% to a private buyer. Perhaps not to a bike shop though. I will double check before I value it but I think the HMRC are being fair with their valuation table.

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 read that contract at the start and decided it was on dodgy ground and knew what I was letting myself in for. I persuaded myself to sign up against my better judgement because I though the gubbernmint was trying to encourage cycling to work and wouldn't screw me over and I was only risking this for one year.

I think the CycleScheme (and probably others) contract is unenforceable.

The biggest issue of all is that the scheme is written as a hire scheme, but there is a huge expectation from consumers that you are buying a bike, regardless of what the contract says. I believe consumer protection will look after anyone in dispute like I was. Remember the endowment scandal ? Regardless of the contracts, people were mis-sold and were getting compensation.

The evidence of this is that all the risk is placed on the consumer. You choose it, you buy it, you pick it up, you insure it, you maintain it, you replace any broken parts, you even check the value when they chose to sell it to you. It is unlike any hire scheme that I have ever come across. Come to think of it, it is just like you own the bike.

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.

I disagree. Both parties, myself and CycleScheme were surprised by the change in rules. CycleScheme used the change and original contract to change to extort additional money from people. I felt so strongly about this, I was prepared to go to court.

I'll just be clear, throughout this process I was only putting myself at a financial disadvantage by accepting that I would have to pay additional tax to HMRC. Right from the start I offered to pay CycleScheme the money they were expecting (5%) but was met with bully boy tactics rather than negotiation.

 

[Joseph]

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

I guess it's not been mentioned very much why the rules changed.

The highly paid finance people in London found a way to use the scheme to hugely reduce their tax bill.

Rough outline:

Use C2W to buy a very expensive bike (and one that won't lose it's value) - for example, one that was used by a tour de france winner.

Stick the bike somewhere safe for a year.

At the end of the year, pay 5% of the value of the bike to the company, then resell it.


Net result: you can be "paid" 10s of thousands of pounds with only a very small amount of income tax / NI.

 

[Bromptonaut]

Why are Cyclescheme not following the '5-7% deposit' process outlined heree http://www.cyclesche...the-hire-period

I think you need to involve your employer in obtaining some clarification of what they expect of their contractor.

 

[Joseph]

The biggest issue of all is that the scheme is written as a hire scheme, but there is a huge expectation from consumers that you are buying a bike, regardless of what the contract says. I believe consumer protection will look after anyone in dispute like I was. Remember the endowment scandal ? Regardless of the contracts, people were mis-sold and were getting compensation.

If you manage to successfully argue that a C2W scheme is in fact a hire purchase scheme, you'll immediately trigger a personal tax liability on yourself.

Trying to then get the scheme provider to compensate you for that tax liability would, I imagine, be a very long up hill battle. Even if a few people managed it, there just isn't the profit in the schemes for such compensation to be paid out to everyone, so the scheme providers would likely go bust.

 

[Joseph]

Why are Cyclescheme not following the '5-7% deposit' process outlined heree http://www.cyclesche...the-hire-period

I think you need to involve your employer in obtaining some clarification of what they expect of their contractor.

As per first post in this thread, "Most people just paid the easy 7% option and extended their hire to four years."

The option was there, the OP didn't want to take it.

 

[lejogger]

I disagree. Both parties, myself and CycleScheme were surprised by the change in rules. CycleScheme used the change and original contract to change to extort additional money from people. I felt so strongly about this, I was prepared to go to court.

You and I don't disagree on this. CycleScheme used the rule change to enhance their profits, but it's not really extortion. They just worked with the guidelines and they happened to find them favourable. It's the exact reason why I rejected cyclescheme and refuse to talk to them when they ring me up every month to try and sell me their scheme because I wouldn't use a company who are making a profit from a governement initiative and making the profit from savings that should be passed on to the employee. It's not what the C2W scheme is about.

I'll just be clear, throughout this process I was only putting myself at a financial disadvantage by accepting that I would have to pay additional tax to HMRC. Right from the start I offered to pay CycleScheme the money they were expecting (5%) but was met with bully boy tactics rather than negotiation.

This is all very well when the owners of the bike are willing to sell you their goods at an agreed value... but Cyclescheme hadn't agreed 5% with you. No matter how many bikes were sold for 5% before the rule change, it doesn't give you the right to tell them how much their assets are worth. It's like walking into a currys and offering them £50 for a £250 stereo, but offering to pay a bit more tax to make up for it.

If I was in your boat I'd be really p*ssed off too, and i'd probably be doing all I could to avoid paying more than I felt fair, but in reality I wouldn't have a leg to stand on.

 

[pshore]

You and I don't disagree on this. CycleScheme used the rule change to enhance their profits, but it's not really extortion. They just worked with the guidelines and they happened to find them favourable. It's the exact reason why I rejected cyclescheme and refuse to talk to them when they ring me up every month to try and sell me their scheme because I wouldn't use a company who are making a profit from a governement initiative and making the profit from savings that should be passed on to the employee. It's not what the C2W scheme is about.

That's not quite the full story. The guidelines clarified the final value fee to be 25% in my case. CycleScheme could have rewritten the hire payments to be lower, then used my already paid money to be part of the final value payment. They did not want offer this option even though it was within the rules. They were forcing three options, all of which resulted in extra profit for CycleScheme.

This is all very well when the owners of the bike are willing to sell you their goods at an agreed value... but Cyclescheme hadn't agreed 5% with you. No matter how many bikes were sold for 5% before the rule change, it doesn't give you the right to tell them how much their assets are worth. It's like walking into a currys and offering them £50 for a £250 stereo, but offering to pay a bit more tax to make up for it.

I don't entirely agree with your analogy - it works if you think of it as a hire scheme. To me, the reality is closer to buying a house. You pay the home owner (bike shop) who holds the asset, they give you the house (bike). You pay commission to the estate agent (Cycle Scheme). They don't deal in assets, they offer a service. The asset has been paid for using the hire payments. The commission is what we were negotiating.


When entering into the C2W agreement we all know that on paper it is a hire scheme, but really you are purchasing a bike. If one in ten people did not get offered their bike at the end of the scheme, I am sure it would collapse. I mean who thinks: "Cycle2Work - excellent I can cheaply hire a bike."

 

[pshore]

If you manage to successfully argue that a C2W scheme is in fact a hire purchase scheme, you'll immediately trigger a personal tax liability on yourself.

Yes and everybody else in the scheme. I would not be popular.

... but if some bike hire company successfully argues in the European Court you'll all be sorry!

 

[classic33]

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.

Use whatever name or term you like to describe it.

The basics are:-
Two or more parties entered into an agreement.
One to use the goods/services supplied, the other(s) to provide those goods/services.
To do so would mean that a contract had been entered into, by ALL parties involved.

Hence me using the supply of goods & services act.

 

[gambatte]

I guess it's not been mentioned very much why the rules changed.

The highly paid finance people in London found a way to use the scheme to hugely reduce their tax bill.

Rough outline:

Use C2W to buy a very expensive bike (and one that won't lose it's value) - for example, one that was used by a tour de france winner.

Stick the bike somewhere safe for a year.

At the end of the year, pay 5% of the value of the bike to the company, then resell it.


Net result: you can be "paid" 10s of thousands of pounds with only a very small amount of income tax / NI.

So wouldn't the 'sensible' option have been to limit the value of the bike? How many people need a commuter bike of more than.... £1500?

 

[400bhp]

I guess it's not been mentioned very much why the rules changed.

The highly paid finance people in London found a way to use the scheme to hugely reduce their tax bill.
blah blah, whinge

Clueless

 

[400bhp]

That should be obvious.

Perhaps not.

 

[400bhp]

I will

 

[Norm]

So wouldn't the 'sensible' option have been to limit the value of the bike? How many people need a commuter bike of more than.... £1500?

There is an effective limit (for most companies) of £1000 as the blanket consumer credit licence only covers scheme up to that value. To rent a bike more expensive than that, you will need to work for a company which has a consumer credit licence.