Southampton City Council scrap C2W!

[chris-s]

Also, regarding the valuation/final fee, if you were able to get it valued at 5%, which is quite permissible, then you would only need to pay the TAX on the other 20%, not the full 25% valuation figure.. HMRC are only interested in the TAX aspect.

Chris

 

[marinyork]

Same old, same old. A loan that is spread over a period is a very valuable thing to a newbie. One that is interest free even more so. It's a shame that it's not quite as transparent and simple as some people would like but there are still some very big benefits for some people. I would have loved to have had spread payments on the huge initial outlay of £300 it cost to buy my first bike. People are just moaners.

 

[pshore]

See this is where I get stuck - 'Cyclescheme' charge 10%, which would make it fair that the LBS charged you £1100 for it (although I'd have thought they should charge you less as the scheme is getting them the sale which without it would mean no sale), but the LBS added on a whopping 30%.

I think your LBS took you for a ride, so to speak. I think they are the culprit in your story, not the taxman.

Well yes, I think the bike shop perhaps did make a little more, but I don't care how much they make. It was about how much it would cost me. In this particular case I was going to buy the bike - scheme or no scheme.

I put some of the blame on Cycle Scheme - their calculator is not entirely accurate or up front about the variability. I guess the discrepancy between the calculation and the actual was something to do with my tax code. They are still not putting any amount of final valuation fee into the calculation either. That caught a number of people when it was 5% and they were miffed.

I still put the majority of the blame on the tax man for changing the rules.

The money is not a massive issue for me because I can afford it, I have more of a problem about ownership of the bike. I worry most about those who really needed the scheme to buy a bike and are being screwed by a change in the rules.

I agree that the reduced VAT is a better option. Perhaps the Peoples Bank would be able to do the loan part.

 

[Norm]

Well yes, I think the bike shop perhaps did make a little more, but I don't care how much they make. It was about how much it would cost me. In this particular case I was going to buy the bike - scheme or no scheme.

Given that the capital cost of the bike in your two comparisons was different by £300, and £200 of that was down to your LBS, I find it hard to understand why you blame the scheme for your LBS taking £200 profit. If they hadn't done that, your rentals would have been lower, your final payment would have been lower and the benefit which you saw would have been considerable.

IMO, you are blaming the scheme because you were soft on your LBS.

I still put the majority of the blame on the tax man for changing the rules.

Oh, I love this misconception.

The taxman has not changed the rules.

Let me, just to be clear, say that the taxman has not changed the rules.

It has always been a requirement that the bikes are sold at the end of the rental contract at fair market value, and any difference between the sale value and the fair market value is a taxable benefit. That's what the rules were at inception, that's what they are now.

People had been taking the **** in saying that a bike lost 95% of it's new price in 12 months, HMRC have only clarified what they considered to be a fair market value. TBH, I still think that allowing 75% depreciation in 12 months is pretty good.

 

[400bhp]

Agree Norm.

From recent experience, a 12 month old bicycle of mine bought on C2W sold for over 55% of its original price.

TBH, given the tax and NI savings, 25% was probably the limit they could go to which of course theyb will have been well aware of.

 

[marinyork]

IMO, you are blaming the scheme because you were soft on your LBS.

Oh, I love this misconception.

The taxman has not changed the rules.

I think criticism of the scheme is fair enough. It was an almightly fiddle putting the scheme through the budget at the time. It should have been sorted out with it's own proper primary legislation and tidying up other aspects of it that will come to haunt it in future years. The cost of ease of passage being muddying of the waters.

 

[adscrim]

It has always been a requirement that the bikes are sold at the end of the rental contract at fair market value, and any difference between the sale value and the fair market value is a taxable benefit. That's what the rules were at inception, that's what they are now.

People had been taking the **** in saying that a bike lost 95% of it's new price in 12 months, HMRC have only clarified what they considered to be a fair market value. TBH, I still think that allowing 75% depreciation in 12 months is pretty good.

The bikes have to be VALUED at fair market value. They do not have to be sold at this value which is where the taxable benefit arises. If the bike is sold at the fair market value then the scheme rules apply and no tax is due. As you rightly say, should be the bike be sold at a value below the fair market value, tax is payable on the difference between the fair market value and the sale price. In most cases (those where the scheme was limited to £1k) the value of tax payable would never exceed ca £100.

"EIM21667 - Particular benefits: bicycles: transfer of bicycle to employee

If a cycle is transferred to an employee at a nominal value (say 5 to 10% of the original retail price), then if the market value is higher, the employee will be taxable on the difference. See EIM21667a for details of an optional simplified approach to valuing cycles sold after the end of a loan/ salary sacrifice period. "

 

[GrumpyGregry]

I still think it is a neat scheme, even if you have to involve the peeps at cyclescheme.

I got a built up bike, to exactly the spec I wanted, from a bike shop who knew I was serious because the frame is their own brand (though no doubt available from others), at a small discount from list as a result of the tax savings and I got an interest free loan thrown in. If I want to 'own' the bike early I can pay for the pleasure of doing so, or for a much smaller sum I can ride around on it as a lone-er from cyclescheme.

 

[Norm]

The bikes have to be VALUED at fair market value. They do not have to be sold at this value which is where the taxable benefit arises. If the bike is sold at the fair market value then the scheme rules apply and no tax is due. As you rightly say, should be the bike be sold at a value below the fair market value, tax is payable on the difference between the fair market value and the sale price. In most cases (those where the scheme was limited to £1k) the value of tax payable would never exceed ca £100.

"EIM21667 - Particular benefits: bicycles: transfer of bicycle to employee

If a cycle is transferred to an employee at a nominal value (say 5 to 10% of the original retail price), then if the market value is higher, the employee will be taxable on the difference. See EIM21667a for details of an optional simplified approach to valuing cycles sold after the end of a loan/ salary sacrifice period. "

Yup, I said all that, I just put an "and" where there should have been an "or".

 

[pshore]

Norm,

I agree that I did not negotiate hard enough with my LBS, but to me it is a moot point. By going with the C2W offer it was estimated to be cheaper for me. That's all. Two deals were on the table, no pressure, I chose one.

I think criticism of the scheme is fair enough. It was an almightly fiddle putting the scheme through the budget at the time.

Yep and to the letter the tax man did not change the rules.

To normal people this was a simple way to buy a bike with instalments. The government designed the system but then turned it into a complex piece of accounting that normal PAYErs are not used to dealing with.

The fair market valuation was always a joke because it was smaller than it should be. But on the flip side, the hire payments are inflated. They didn't change the hire payments part to compensate.

I can tell you that from the figures, I could still buy my bike at the end of year1 and the total cost to me will have been the £1300, exactly the value of the bike as my LBS sold it to me. The tax break (discount) that was promised by the scheme has vanished so it is now only a loan system if you want to own your bike after one year.

They have fudged more loan rules on top to try and bring the cost down to make it look like you are still getting a discount.

 

[adscrim]

The fair market valuation was always a joke because it was smaller than it should be. But on the flip side, the hire payments are inflated. They didn't change the hire payments part to compensate.

How are the hire payments inflated? The hire payments should be the cost (possibly less VAT) spread over the life of the agreement, taken from gross salary resulting in a reduction in the amount of tax and NI you pay. If you are not seeing a benefit then it's the fault of the scheme operators, not the tax man.

 

[Headgardener]

http://www.dailyecho...il_bike_scheme/

Its a sad loss. It never even got off the ground and they scrapped it. Perhaps the Councillers/Executives should take less of our money to faciliate something that is dreadfully needed. After all parking is massively at a premium, as is space on the roads during peak times.

Wrong council DF it is Hampshire County Council not Southampton City Council that are scrapping their C2W scheme. Probably to pay for their new "internet czar" and that post's associated staff.

 

[pshore]

How are the hire payments inflated? The hire payments should be the cost (possibly less VAT) spread over the life of the agreement, taken from gross salary resulting in a reduction in the amount of tax and NI you pay. If you are not seeing a benefit then it's the fault of the scheme operators, not the tax man.

If we take the case where the bike may be able to be purchased after one year.

Originally, this was a scheme written up so your employer can cover their costs with a final value fee at 5%.

You pay 100% of the value of the bike over one year. At the end of the year the bike is worth 5% of the value. In the business model, the amount of money recovered is 105%.

The final value rules were then clarified so in the worst case the bike is worth 25% at the end of one year. In your employers business model, they are only recovering their costs +5% so they now only need 80% of the value to still recover 105% (85% capital + 25% fv).

In my opinion, the original hire charges are now over priced and there is a case for saying you have overpaid. You have paid 125% and should be paying 105% (if you are allowed to purchase). Unfortunately you agreed to a hire fee at a fixed price and therefore your employer (or CycleScheme or taxman) makes an unintended profit.


For brand new C2W schemes, the 125% model is still what's offered isn't it ? Or are employers now asking for loan payments worth 80% of the value of the bike ?

 

[adscrim]

If we take the case where the bike may be able to be purchased after one year.

Originally, this was a scheme written up so your employer can cover their costs with a final value fee at 5%.

You pay 100% of the value of the bike over one year. At the end of the year the bike is worth 5% of the value. In the business model, the amount of money recovered is 105%.

The final value rules were then clarified so in the worst case the bike is worth 25% at the end of one year. In your employers business model, they are only recovering their costs +5% so they now only need 80% of the value to still recover 105% (85% capital + 25% fv).

In my opinion, the original hire charges are now over priced and there is a case for saying you have overpaid. You have paid 125% and should be paying 105% (if you are allowed to purchase). Unfortunately you agreed to a hire fee at a fixed price and therefore your employer (or CycleScheme or taxman) makes an unintended profit.


For brand new C2W schemes, the 125% model is still what's offered isn't it ? Or are employers now asking for loan payments worth 80% of the value of the bike ?

The 5% is not there to cover any costs, it's there because HMRC require a sum to be paid for the asset transfer. HMRC do not require that sum to be equal to the fair market value of the asset. 5% is seen to be a reasonable nominal value (probably because it's mentioned in the HMRC guidance - it might well have been £5).

25% is now being used because, I assume, HMRC realised that people were receiving taxable benefits - receipt of assets at lower that the market value - without paying tax on that benefit.

For brand new C2W schemes the HMRC guidance is still the same. 100% of the purchase cost is recovered from gross salary. After the loan period is over, the asset can be offered for purchase. If that purchace price is lower that the valuation as laid out in the HMRC valuation matrix, tax is payable of the difference. The actual purchase price could easily be £1, you would simple be charged tax on the eg £249.

 

[Norm]

But on the flip side, the hire payments are inflated. They didn't change the hire payments part to compensate.

Something I've been recommending here for about a year is that employers should review the level of hire payments.

I've seen nothing anywhere in the regulations that requires the loan repayments to be 100% of the capital value of the bike. It was set that way with initial implementations because it is those payments, through the salary sacrifice, which attracted the tax benefits.

When the final purchase payment could be set at 5%, getting 100% back through salary sacrifices maximised the tax and NI savings for the employee (and the employer).

With the purchase payment now recommended to be 25% (say, I know there's a few different levels) there is nothing to say that the rentals cannot be set to cover, say, 75% of the purchase price.

How are the hire payments inflated? The hire payments should be the cost (possibly less VAT) spread over the life of the agreement

Nope, custom and practice has set it that way to the extent that very few (just me and pshore, apparently) question them. Set the rental payments to cover 75% rather than 100% and Robert is your father's brother.

The scheme is straightforward, one of the easiest piece of tax legislation or regulation that I have seen. Lies, rumours, misunderstandings and misconceptions make it appear difficult.

Go back to the source documents and clear the smoke'n'mirrors which have appeared over the years.