not sure if this has been done- new valuation guidelines were published yesterday. For original price over £500, fmv is now 25% of purchase price at 1 year old....
see here.
Will this knock the scheme into a hat? Can't be buggered doing the calcs, but it looks like a big jump in cost, especially if you're looking at spending more, rather than less.
Just to clarify...
Assuming a cost of £600 and a 1-year scheme, the value would be £150 (25%) and the tax payable on that amount at time of transfer would be either £30 (for a 20% tax payer) or £60 (for a higher rate tax payer).
Well that's killed that one then.
and the savings you'd make on tax during the hire period (for a lower rate tax payer) would be about £200 (inc national insurance savings) so the overall saving is £20. well worth it...
yup, i dont want to give my ridgeback away after 18 months but they can bl00dy well have it back if they quote silly figures. Of course there is a distinct possibility that you could pick your own bike back up in the great company yard sale that will result from them trying to charge a fortune for the bikes and getting load of 1 year old knackered bikes back...
Most of the schemes Ive read into for my freinds and family, and indeed the scheme offered by my employer, are all based on a period longer than one year, ranging from 18months to three years, all be it with the rental payments lasting only 12 months. If the value plumits to 25% after just one year, then its reasonable to argue that after 18months or two years, it would be worth bugger all. So i'd argue that on the contary, these figures might boost the scheme!
*when I say fortune I know its only 25% but the reality is that the company would spend far more administering the collection and resale of the bikes so it would be more cost effective to make it a nominal sum i.e. make it too good to bother handing it back.
If druidh is correct (above) then for a 20% tax payer isn't the actual amount payable still only 5% of the original RRP ? Which is the current guidance applied by some of the schemes ?
i.e. 20% (employee tax band) of 25% (1 yr fair market value calc) == 5%
Does this apply to schemes currently in effect or to new loans only? To change the recommendations as I'm nearing the end of my loan will really hack me off, that's a big chunk of money I wasn't expecting to pay and 100% would have deterred me from taking on the bike 
allthepies - no, the point druidh was making is that you need to pay tax ON TOP of the "final value payment", whereas the monthly payments are taken pre-tax
Interesting. The valuation can be done on the original purchase price excluding VAT, but VAT has to be added to the Valuation price. Therefore (if I've got this right)...
You buy a bike for £1000
You pay the salary sacrifice loan off over a year.
At the end of the year it's valued at 25% of 851.06 which is £212.76, but you have to add VAT to that, so comes out at £250. Which is 25% of 1000 So what was the point in bothering to do all that?
Anyway, assuming you're a higher rate taxpayer, that £1K bike will cost you £502:13 (assuming your employer claims the VAT back on the original purchase) over the year plus £250 at the end for the 'fair market value' if you want to keep it.
So, that £1K bike has actually cost you £752:13. Still a saving, but probably not as good as you were expecting.
I think!
Wondering if they apply the VAT rate at original time of 'sale' or will they apply 20% after all final value payments after Jan 2011.
That will add a wee bit more.
i.e. you do the scheme now at 17.5% (albeit irrelevant) but are billed 20% next August/September when settling.
"In either case, as long as any payment that the employee makes for the cycle is equal to or more than the market value, there will be no tax charge under the employment income rules. If the employee pays less than market value, the difference will be taxable as employment income. "
Assuming I pay zero at the end of the (1 year) scheme period then according to the above the difference between the market value and the amount I paid (zero) would be treated as taxable income i.e. I would pay 20% tax on that amount.
So :-
Bike cost £600
After 1 year fair market value = £600 * 25% = £150
I pay zero market value and thus incur a £150 taxable income hit.
I then pay 20% tax on this £150 == £30.
Sorry, it's early and presumably I've misunderstood, can someone clarify ?
trust HRMC to make it so easy to work out.
Tax doesn't have to be taxing.
But it is.
allthepies, your workings appear correct if you assume you are not paying for the bike. How are you getting away with that?
>allthepies, your workings appear correct if you assume you are not paying for the bike. How are you getting away with that?
I'm not getting away with anything, my example is pure hypothesis 
allthepies is right - you either physically pay the market value at the end, or you get taxed on it (because you're not paying for it and it's therefore a taxable benefit). The employer would have covered their costs with the hire payments already deducted so I'd assume most would just let you have it (at a small employers NIC cost on the taxable benefit) rather than profiting from the scheme (i did say "assume"!)
or if starting from scratch, they could reduce the hire payments slightly to take into accounts the expected FMV at the end (I haven't worked out how that impacts on overall tax efficiency...)
or just have the rental period over longer than one year (even though you make all the payments in one year).
What happens if you don't buy the bike at the end of the scheme? The bike belongs to the employer, doesn't it, with no futher action needed.
Now lets say, hypothetically, the bike doesn't get used for a year or two and then you make an offer to buy it after two or three years for a low price.
Assuming you're going to stay with your employer throughout that time, does that not work?
nbt - Member
allthepies - no, the point druidh was making is that you need to pay tax ON TOP of the "final value payment", whereas the monthly payments are taken pre-tax
No, that's NOT the point I was making. You only pay the tax on the FMV, not the FMV itself. In effect, this is little change from the previous position.
Now then, let's say you "topped up" to £2,000. That means the bike would be worth £500 after one year.......
Seems it makes little difference if interpreted correctly, but i really don't trust my HR department to get this right.
Seems it's basically set up so that the final payment is 10% of original value for a higher rate tax payer.
Makes my 2k bike about 30% off - might not bother this year and get a 2010 bike in the sale on 0% finance
As I understand it, if you pay less than 25% on the initial value, the difference is a taxable benefit, so you have to pay the tax on that amount.
I doubt it'll make much difference to the total you pay.
What it will do is make it more cumbersome to administer. So, fewer companies will run the scheme.
This is all too confusing for my tiny little mind. Hmm I didn't have to pay anything at the end of mine, wonder what will happen.
I think cyclescheme and others might have quite a lot to answer for if they've been sort of misleading people about the proper final valuation. Lots of people will have got the bikes on that basis and missed out on cash discounts etc
After I got screwed for an additional 10% mark-up by the LBS to cover the commission they had to pay to C2W, this is going to absolutely foul up any saving at all. Wish I hadn't bothered, shan't in future. 
You don't have to buy the bike at the end of the hire period. Should you work for a sympathetic company (or any sensible company) I'm sure they won't want year old bikes sitting about the work place gathering dust. The easiest way to stop this is to let the original lease'ee (is that a word) hold on to the bike and continue to ride thus keeping the workforce fit and happy.
Lets face it, the monthly hire charge covers the cost of the bike and your employer pays less NI for the hire priod so its not like anyone has lost out!
Final point...as you don't have to purchase the bike there is nothing stopping you apply for a new one every year. Just face up to the fact that you never own it!
My scheme levies a charge for "disposal of the cycle" which is equal to the cost of purchasing it.
Here is how it's worked out for me purchased £1000 voucher 3 years ago payed of over the 12 month period. Now have a bill for £120 to pay at the end of this month or give it back and still have to pay them £100 to do that. For me that all sucks as the others above have stated at this time of year i could have just bought a old stock bike with 20% of and probably been better off in the long run.
I would certanly check out the figures more closly before doing it again which is a shame as i did want to get a new commuter bike as the original one has seen better days now with 3 winters on the road etc.
Bats.
End of the scheme if this really is the case. I will be buying s/h or in closeouts.
The whole system should be overhauled. Taxman should explicitly state what the final payment should be (maybe in value bands? ie. £500 = £50 final payment) and make it mandatory for all companies to follow the same rules. At the moment it is too open for interpretation (and confusion as evidenced by these threads!)
Addin further confusion like buying clothes / accessories (certainly not worth much after a year), topping up, repairs or replacements etc...
Why are so many things made completely and unnecessarily complex. Is it to keep people in jobs!?
druidh - MemberNo, that's NOT the point I was making. You only pay the tax on the FMV, not the FMV itself. In effect, this is little change from the previous position.
Assuming of course that your employer chooses to give you the bike for nothing and only make you pay the tax. I suspect that many employers will see the "25%" and charge the subscribers. I expect mine will, which is annoying
reading through all of this it looks that the 'final payment' if you want to keep the bike at the end of the year, will be 25% of either what the bike is worth, or what it cost new ? unclear which ? Either way quite a change from the common situation at the moment when the final payment is often £30 on a £1000 bike. 
Do these new rules apply to schemes that are already running? Mine started at the begining of this year. 
ouch, just read that link. also looking at wording of current scheme I am on, the final market value gets determined at the end of the hire period, which is in my case Nov 10, so looks like it will apply to currently running hires
An interesting final though from the link above....just need the message to get out there!
However, not all bike shops think the scheme is dead in the water.One said: "From my reading of [HMRC's rule change] the employer can sell the bike to the employee for whatever they like, ie £5. However the difference between the amount that the employee pays for the bike and HMRC’s valuation of the bike would become a benefit in kind and therefore taxable.
"So £1000 bike (£850 ex vat): HMRC’s valuation £250
"Employee pays £5 for the bike, and Tax/NI on £245 (£54 Tax + £25NI) So in effect pays a final payment of £84.
"This is still a massive saving."
You only save £66 on a £1000 bike and that’s if the company charge you a £5 at the end!!
I bet you could walk into any bike shop now and they’ve give you 10% off RRP.
B2W is now an interest fee loan.
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