For those caught by the Cycle to Work clarification

[400bhp]

See above

 

[Norm]

Possibly, but I think the companies which Joseph was referring to would be in the financial sector so may have a CCL.

That doesn't stop me agreeing with your synopsis, though.

 

[classic33]

But did you enter into an agreement that included the transfer of the bike at a particular price?

You mean along the lines of regular payments of X amount with one final payment of X amount, agreed at the start.
After final payment is made the goods become yours.

Many times, only never on a bike through a third party.

 

[Flying Dodo]

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.

It's been mentioned loads of times the rules have not changed, merely that HMRC decided to enforce the original rules, as most firms were saying the final payment after 1 year would be 5% or £10 or some other silly figure, rather then the true value.

 

[Joseph]

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?

IMHO the sensible option would be to hugely simplify the scheme. It's way too complicated just now - I'm sure the original aim was meant to be to get people cycling as that saves the country money in the long term, all this "you can't get a guarantee you can buy the bike at the end" is nonsense red tape in my eyes.

I'm sure the above reason wasn't the only one that HMRC wanted to catch when they changed the rules, but I imagine it was a big driver for deciding to re-examine the scheme.

 

[Norm]

I'm sure the above reason wasn't the only one that HMRC wanted to catch when they changed the rules...

And Joseph fails again, continuing to spread the BS even though it was pointed out just a few posts earlier that no-one has changed any rules.

Just to make it clear Joseph, your mythical scheme where people were forming queues to buy up pro-spec bikes to sell them a year later would always have been caught by the requirement for the bikes to be sold at market value. That has not changed. HMRC have merely set an expectation of what that market value should be.

 

[Joseph]

And Joseph fails again, continuing to spread the BS even though it was pointed out just a few posts earlier that no-one has changed any rules.

The way the rules are applied changed twice in the last year. (Technically, yes, the underlying rule didn't change, but the way they're being applied/interpreted by HMRC has changed significantly.)

1. The rules for apply VAT to cycle schemes were changed by a court ruling in July (this doesn't affect everyone, as many employers aren't subject to VAT):

http://road.cc/conte...hmrc-vat-ruling

2. The changes to acceptable fair values happened around August last year:

http://www.clarksleg...arified+by+HMRC

Just to make it clear Joseph, your mythical scheme where people were forming queues to buy up pro-spec bikes to sell them a year later would always have been caught by the requirement for the bikes to be sold at market value. That has not changed. HMRC have merely set an expectation of what that market value should be.

You're correct that the bikes have always been required to be transferred at 'fair market value'.

However, prior to August 2010, the majority of employers were successfully applying the "5% rule" for fair market value after a year. This isn't mythical - a lot of people on this site can confirm this was the case (myself included), and that they have been able to acquire the bikes at the 1 year point at significantly below their fair market value without triggering a tax liability, or at worst (if no payment was made) only triggering a liability on that 5% value.

Setting clear guidelines for how to value the bikes (and in particular the high value 'collectable' ones) has very effectively ended the dodge.

 

[Joseph]

Possibly, but I think the companies which Joseph was referring to would be in the financial sector so may have a CCL.

That doesn't stop me agreeing with your synopsis, though.

Yes, a CCL is relatively straightforward to acquire (my knowledge gets hazy at this point but I believe a CCL is not necessary if you are merely loaning the bike to the employee - ie. it only becomes a "regulated hire" if you attempt to recover the value of the bike from the employee via hire payments).

The fundamental underlying starting point for these schemes is that no tax is due when an employer makes bikes available to employees principally for use in commuting. That fundamental has no requirement that the value of the bike is reclaimed from the employee.

 

[Joseph]

I can't see why you would bother with the bike here. If the bike isn't being used for any commuting the whole thing is a fail as a tax avoidance scheme. It ends up a straight forward tax evasion

Yes, good point - I missed a critical part there. There is a requirement to ride the bike to work at least once.

 

[Downward]

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

I'm on my 3rd bike now - Although Commuting has accounted for 90-95% of this years total mileage and probably 80-85% last year and 100% the year before.

I now own 2 and I'm 6 months into the lease on my final folder although this isn't getting used much as I can't claim mileage on it.

 

[Downward]

Interesting though re the final 25% fee. My bike cost £150 but the shop wouldn't sell it for that only at RRP £250. So really when it comes to the end of the year and They give me a final valuation and I can find it online for £150 then surely it's worth 25% of £150 rather than £250 ?

If I did the scheme again I would just extend the lease over 4 years.

 

[Downward]

IMHO the sensible option would be to hugely simplify the scheme. It's way too complicated just now - I'm sure the original aim was meant to be to get people cycling as that saves the country money in the long term, all this "you can't get a guarantee you can buy the bike at the end" is nonsense red tape in my eyes.

I'm sure the above reason wasn't the only one that HMRC wanted to catch when they changed the rules, but I imagine it was a big driver for deciding to re-examine the scheme.

Maybe the scheme will be pulled like the Lease cars - Why lease a £20k car paying no Tax or NI when a £7k Car will do the job of getting you to work and back. That was a way bigger scam imo.

 

[Flying Dodo]

Yes, good point - I missed a critical part there. There is a requirement to ride the bike to work at least once.

Wrong again. The bike is supposed to be used for "qualifying journeys" ie travelling to/from work, more than 50% of its total usage. All set out in the DfT guidance.

 

[Flying Dodo]

The way the rules are applied changed twice in the last year. (Technically, yes, the underlying rule didn't change, but the way they're being applied/interpreted by HMRC has changed significantly.)

1. The rules for apply VAT to cycle schemes were changed by a court ruling in July (this doesn't affect everyone, as many employers aren't subject to VAT):

http://road.cc/conte...hmrc-vat-ruling

2. The changes to acceptable fair values happened around August last year:

http://www.clarksleg...arified+by+HMRC



You're correct that the bikes have always been required to be transferred at 'fair market value'.

However, prior to August 2010, the majority of employers were successfully applying the "5% rule" for fair market value after a year. This isn't mythical - a lot of people on this site can confirm this was the case (myself included), and that they have been able to acquire the bikes at the 1 year point at significantly below their fair market value without triggering a tax liability, or at worst (if no payment was made) only triggering a liability on that 5% value.

Setting clear guidelines for how to value the bikes (and in particular the high value 'collectable' ones) has very effectively ended the dodge.

The majority of employers may well have been successfully applying the 5% rule, but that was only because HMRC had been overlooking the abuse. Once it realised how widespread the tax evasion had become, they issued their further guidelines, stressing the need for the bike to be sold at a true market value, as per the original guidance, which had always said that.

Anything else, is still tax evasion. Even people who only paid 5% last year, or as Adrian also said, not using it for commuting.

 

[pshore]

Interesting though re the final 25% fee. My bike cost £150 but the shop wouldn't sell it for that only at RRP £250. So really when it comes to the end of the year and They give me a final valuation and I can find it online for £150 then surely it's worth 25% of £150 rather than £250 ?

If I did the scheme again I would just extend the lease over 4 years.

25% only applies to bikes that cost over £500. Google fair market value table and you will find the right %.