New HMRC guidance on transfer fee Cycle to Work

[ChrisKH]

Hopefully nothing will come of it but if this was a C2W bike then, irrespective of the involvement of Cyclescheme, the transfer to the employee must be at market value. If it was not you have received a benefit in kind to the extent of the gap between your payment and the actual market value. You are taxable on that benefit. If HMRC call for the money it is your problem.

And in making that point I'm not trying to be combative or 'clever'; just pointing out the facts as they are on the ground.

In practice, that will not happen and I will tell you why. You have relied on your employer to administrate the scheme efficiently and within the rules. The fact they have failed to charge you the market value of the bike is a failure on their part. HM Revenue and Customs will pursue the employer for their failure to complete form P11d properly (for which there is a wacking penalty of £3,500 per employee or something) and the employer will negotiate a settlement with the Revenue to save any further enquiries into their PAYE matters. In the event that the Inland Robbery pursue you for any aspect of the transaction all you need do is say you relied on your employer to issue form P11d with the correct amount of benefit (ie the difference between the sale value and the market value) and as this was not on your form P11d, you did not benefit. It's a technicality, but by virtue of having no form P11d or no entry on form P11d you should be able to escape tax. That's my view anyhow. I have never seen an employee being pursued for a non existent entry on a P11d i.e. an unrecorded benefit. Since by definition if it is unrecorded it is a failure on the part of the employer not the employee.

The end result is employers pulling out of Cyclescheme arrangements or starting to charge market value, since the cost of default (investigation, penalty, interest, professional advice) is much higher.*

*Or as someone has intimated they can include the benefit on form P11d, you pay the tax (usually via your tax code or tax return filing), they pay Class 1a National Insurance and everyone escapes censure.

 

[2Loose]

That's not the case. The employee must be taxed in relation to the full market value at transfer, or the 25% (or whatever) that is now being mentioned. It is perfectly within the HMRC guidance for an employer to transfer the asset at £5 providing the employee pays tax and national insurance on the remainder up the to FV assesment - about £80 on £245. Total final payment being around £85 and substantially less that the £250.

This is the point made in this article, and pretty much it has worked at my place. Find the FMV, but actually pay the tax on that, rather than the FMV.

 

[Bromptonaut]

This is the point made in this article, and pretty much it has worked at my place. Find the FMV, but actually pay the tax on that, rather than the FMV.

What I meant was broadly what adscrim says. The transfer must be at market market value if it is not to create a tax liability. The option of taking the bike at nil/under value and paying the tax is one I'm exploring with my employer at the moment.

Chris KH's account is very intersting and explains why, given a very picky inspector, my bosses have been so careful over this.

 

[adscrim]

I'll be interested to see how they deal with my cycle to work transfer - already owning a commuter, a wet bike, a dry bike and a mountain bike, I spent a large sum, through the scheme, on accessories (lights, a jacket, baggy shorts, bib knickers, windproof gillet, gloves and a saddle). I can see it going two ways, FV will be deemed negligible or without guidance, set at 25% for all!

 

[MartinC]

What I meant was broadly what adscrim says. The transfer must be at market market value if it is not to create a tax liability. The option of taking the bike at nil/under value and paying the tax is one I'm exploring with my employer at the moment.

As I understand it the point Norm was making was that at the end of the scheme the transfer is from the Employer to Cyclescheme to dispose of the bike as part of their service in administering the scheme. If Cyclescheme choose to sell it to the Employee (at whatever price) then the Employee isn't receiving a Benefit in Kind.

 

[Norm]

What I meant was broadly what adscrim says. The transfer must be at market market value if it is not to create a tax liability. The option of taking the bike at nil/under value and paying the tax is one I'm exploring with my employer at the moment.

Although that is still irrelevant if Cyclescheme do take ownership.

Rats... Martin beat me to it.

Market value of accessories should be pretty negligible, adscrim. How much would you pay on ebay for a 12 month old gloves and bib shorts?

 

[Bromptonaut]

Although that is still irrelevant if Cyclescheme do take ownership.

Rats... Martin beat me to it.

Market value of accessories should be pretty negligible, adscrim. How much would you pay on ebay for a 12 month old gloves and bib shorts?

Norm,

You and Chris KH clearly know far more about this stuff than I do. However, if the asset were more valuable than a s/h bike I cannot see the revenue allowing it's intervening transfer to a third party to be seen as anything other than an avoidance device.

Why different in this case?

 

[Downward]

Although that is still irrelevant if Cyclescheme do take ownership.

Rats... Martin beat me to it.

Market value of accessories should be pretty negligible, adscrim. How much would you pay on ebay for a 12 month old gloves and bib shorts?

All that happens with CS is that you loan the bike from the employer, They transfer bike to Cyclescheme. Cyclescheme now own the bike. They offer me the chance to buy it or dispose of it.
Simples.

It's up to HMRC to sort it out with cyclescheme who are making 15% per voucher so have plenty of money if they fair market value is deemed to be 25%

 

[Norm]

Norm,

You and Chris KH clearly know far more about this stuff than I do. However, if the asset were more valuable than a s/h bike I cannot see the revenue allowing it's intervening transfer to a third party to be seen as anything other than an avoidance device.

Why different in this case?

From the bits I've seen, it is different because (prepare for grey area) the transfer is not for the purpose of tax avoidance.

There's plenty of scope for argument from either side but my understanding is that a case could be made that the transfer is to improve the scheme's offerings to employees by making a broad range of brands and suppliers available, to reduce administration, to improve cash flow and to minimise the disposal costs of what would be, to most employers, a low value asset.

Because there are a number of valid reasons for the disposal to Cyclescheme, HMRC would be pretty hard-pressed to prove that the disposal to Cyclescheme was just for tax avoidance. Other than a few posts on these pages, have you seen anything which suggests Cyclescheme acting as a intermediary helps reduce the tax liability? Cyclescheme are, IMO, being pretty canny about that benefit.

 

[Fairweather99]

It sounds like there is still a good saving, if like the others have mentioned you just pay the tax on the 25% FMV at the end of 12 months and the company waive the payment. i.e. you get taxed on the amount that you didnt pay the company as a Benefit in Kind. But what's the case if they don't sell it to you (either the employer or cyclescheme). Presumably you've suffered about 50% of the original price for the right to borrow the bike for a year. That can't be right can it? The company get fully reimbursed and then get to keep your bike?

The optimal would be for the employer to pass on the NIC saving too and deduct only 87.2% of the original net price after deducting VAT, then even if they profit from selling you the bike for 25% then you'll be quids in by having only paid about 68% after tax benefits - as long as you get the maximum VAT and higher rate tax benefit. If they don't sell it to you, the 43% or so is still enough to be peeved about if they take it away from you after a year though.

Finally - anyone know whether the 25% to be charged by the employer is inclusive of VAT? If so the taxman is clawing back 5% of the original value in VAT after the rate rise to 20%. If the 25% is plus VAT then we are in a whole different set of numbers....

Any thoughts?

 

[jack the lad]

I think some of you are mixing up two different things here so you are in danger of getting your sums wrong or of paying over the odds..

The HMRC guidance is, paraphrasing, that a year old bike is worth 25% of its list price. So, if your employer only charges you 5% of the cost of the bike to buy it off them you are beng given 20% of its value - and that is a taxable benefit. You MAY be charged tax on that 20% - , but the tax is only a percentage (22%) of that 20% - roughly another 5% of the bike's value. If this happens it will have cost you 10% of its list pirce to buy, not 25%. Its a bit higher (13%) if you are a higher rate tax payer - but then you've also saved more on the 'rental' period.

If your employer or cyclescheme or whoever want to sell you the bike for 25% to save you the tax liability you should not just accept that. It is a lot cheaper for you to pay your employer 5% and potentially HMRC the tax on 20% than to pay your employer 25% and no tax! Your employer/cyclescheme have alread been paid in full for the bike (and admin costs) so they have no grounds to claim more than a nominal amount from you! It is just profit for them.

 

[Gary Cummins]

I may have missed something in earlier posts, but I understand that an important point about the scheme is that the period of salary sacrifice, which is the agreed monthly payment period, does not have to be the same length of time as the agreement to hire the bike.



This means that the bike loan payments can still be undertaken over 12 months, but hire and use of the bike can continue for a much longer period of time without any extra charge up to 72 months, at which point the bike should have no value and should be transferred to the owner at no cost.

I did despair when I first saw the revised tables, but this detail above still makes the scheme attractive.

Apologies if this has been covered already.

 

[primalgeek]

I may have missed something in earlier posts, but I understand that an important point about the scheme is that the period of salary sacrifice, which is the agreed monthly payment period, does not have to be the same length of time as the agreement to hire the bike.



This means that the bike loan payments can still be undertaken over 12 months, but hire and use of the bike can continue for a much longer period of time without any extra charge up to 72 months, at which point the bike should have no value and should be transferred to the owner at no cost.

I did despair when I first saw the revised tables, but this detail above still makes the scheme attractive.

Apologies if this has been covered already.

Yes, no transfer of ownership is required at the end of the salary sacrifice period. Also note that there is no requirement for your employer to recover the full cost of the bike via salary sacrifice. In fact I know of a few one person LTD companies (i.e. contractors) that buy a bike via C2W and don't apply salary sacrifice at all (in other words 'salary plus').

For example an employer could recover 75% of the cost of the bike during the 12 month period and (optionally) transfer the ownership of the bike to the employee for 25% of it's original value.

See the DfT guidance here: http://www.dft.gov.u...nce/pdf/518054/

 

[anyuser]

I may have missed something in earlier posts, but I understand that an important point about the scheme is that the period of salary sacrifice, which is the agreed monthly payment period, does not have to be the same length of time as the agreement to hire the bike.



This means that the bike loan payments can still be undertaken over 12 months, but hire and use of the bike can continue for a much longer period of time without any extra charge up to 72 months, at which point the bike should have no value and should be transferred to the owner at no cost.

I did despair when I first saw the revised tables, but this detail above still makes the scheme attractive.

Apologies if this has been covered already.

This is exactly what my employer has decided to do, so my new bike should arrive in less than 2 weeks as I decided to join the scheme.

 

[400bhp]

This is exactly what my employer has decided to do, so my new bike should arrive in less than 2 weeks as I decided to join the scheme.

And mine.

However I have the option to buy the bike after a year if I so wish which I will take up.