Cycle to Work change after final payment - what the .....!?

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Cycle to Work change after final payment - what the .....!?

16 posts & 13 voices | Started 10 months ago by mr plow | Latest reply from Aidy

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mr plow - Member

Need advice for a workmate and wish to ask the experience of the forum.

Workmate bought a bike for £640 through our cycle to work scheme and signed the agreement April 2010.

Paid the final agreed payment in April 2011.

Our company has just informed my workmate that they will get their final payment back and are now due a much larger amount to be paid in tax at the end of the year.

This would make the overall payment of the bike £690.

Has this happened to anyone else on here and is there anyway advise to help my workmate as the agreement has changed?

Thank you for your help on this.

Posted 10 months ago #
stumpyjon - Member

It's starting to happen ever since the inland revenue started to crack down on the final value being more realistic. In reality if this loop hole had been closed from the start nobody would have even considered doing the CTW scheme over 12 months as interest free would have been a much cheaper option.

Not sure what's going on with the payment back thing though unless the company has been caught out letting the bikes go at below market value (which was normal) and now is effectively giving the bike to the employees which will result in the value of the bike at the time of transfer being taxable.

Posted 10 months ago #
Dibbs - Member

Workmate ~~bought~~ hired a bike for £640 through our cycle to work scheme and signed the agreement April 2010.

Read the R&C rules.

Posted 10 months ago #
peterfile - Member

Interesting one.

I was in a similar position myself. The HMRC rules changed half way through my original agreement in respect of the fair market value to be applied at the end of the term.

My firm still offered me the bike for 5% of the voucher price. I took the view that this was incorrect, since HRMC had already issued guidance stating that a fair market value was actually 25%.

However, I kept quiet and took the view that the firm offered me an asset which belonged to it for £50, I accepted that offer and paid up. In my opinion, transfer of ownership had taken place legally.

The firm, however, had effectively sold me an asset at undervalue. I think the firm is liable for the shortfall, but at the same time I have benefited from the sale at undervalue, therefore I struggle to see how I could argue that I either (a) shouldn't be made to give the bike back, or (b) shouldn't have to make up the deficit.

I wish I could remember at least some of the basic principles of equity and commercial law

Posted 10 months ago #
b r - Member

The HMRC rules changed half way through my original agreement in respect of the fair market value to be applied at the end of the term.

The rules are still the same, its their interpretation that changed.

TBH When the scheme first came out I couldn't understand how it would work, in that companies were giving away assets at below value.

Posted 10 months ago #
fasthaggis - Member

This is how my workplace dealt with it.

Dear Cyclescheme participant,

As you will be aware, Cyclescheme is an HM Revenue and Customs (HMRC) approved scheme and as such is operated within current taxation rules.

From October 2010, HMRC introduced a change to the “Fair Market Value” (FMV) assessment of bicycles (& associated safety equipment) for the post hire period for everyone currently taking a bike through Cyclescheme.

Following consultation with Cyclecheme, we have now opted to take ownership of the scheme after the initial 12 month hire period.
As your hire period has or is due to expire there are now three options available to you.

• Option 1: You can choose to continue to loan the bike from us. In this instance, the bike will remain our property and no further hire charges will be made; OR

• Option 2: You can purchase the bike at the fair market value which will be calculated as described in the Valuation Table below;
Typically this would be offered at substantially less than the original value of the equipment, but to prevent a taxable benefit in kind arising as a result of the transfer of ownership you will be required to pay the fair market value of the equipment.

Based on HMRC’S Valuation table, we will offer the transfer to you for a payment of either 18 or 25% of the original purchase value (including VAT) depending on the condition and original price of the cycle (please refer to the attached document “How to use the valuation table”).

OR

• Option 3: Return the bike and safety equipment to us.

I now require you to complete the attached form indicating your preference and return to me, by email (scanned document) or internal mail.

If you do opt to extend your hire period, we will review the situation after this 12 month period and contact you again.

Kind regards

I wasn't planning on getting rid of the bike any time soon,so I will just keep extending the hire period.

Posted 10 months ago #
ebygomm - Member

Despite current scheme members being issued a letter similar to that posted by fathaggis above the scheme is still being marketed in exactly the same way at our place of work. I think it's very poor that the valuation table and worked examples aren't available to people before they sign up.

Disclaimer: I've never participated in the scheme and don't intend to, it's not something I really think is a good thing but I think people who go into it should have all the facts available to them so I've still whinged to HR about it

Posted 10 months ago #
funkynick - Member

I've never understood why the company can't just give the employee the bike.

Okay, it's then a taxable benefit in kind so this means you have to pay tax on the value of the transfered assets.

According to the HMRC documentation, the value of the bike will be approximately 25% of the original value.

So, at 20% tax rate you'd pay 20% of the 25% in tax, which is 5% of the original value.

As far as I can tell, the only reason a company would make people pay the fair market value is that they want to make money out of the deal as in essense, the company will have been paid back the original value of the bicycle from the monthly payments, and then an additional 18-25% on top for the fair market settlement at the end of the hire period.

By the company giving the bike to the employee, they don't make any money on the scheme as the 5% paid is in tax and goes to the HMRC.

Posted 10 months ago #
DT78 - Member

It's a far better bet to buy a bike on closeout now, can't see the C2W scheme lasting.

Last time I looked cyclescheme hadn't updated their 'savings calculator' and had a final payment required caveat. Potentially quite misleading.

Posted 10 months ago #
mr plow - Member

Thanks for your help people.

Posted 10 months ago #
nickf - Member

• Option 1: You can choose to continue to loan the bike from us. In this instance, the bike will remain our property and no further hire charges will be made;

In which case you're liable to tax on the value of the rentals foregone by the company for the remaining time that they hold it on their balance sheet.

Posted 10 months ago #
FunkyDunc - Member

Just done some very quick reading and a couple of sources I read said that the 25% > £500 is 'fair' market value. Apparently you could argue the bike has above avg wear & tear etc and they could still offer the bike at a lower market value due to condition.

Posted 10 months ago #
Dibbs - Member

+1 funkynick

My employers do a 3 year scheme anyway so my understanding is that I'll be liable to the tax on 12% of the original value, not something I'm all that worried about as I won't need to do anything about it till xmas 2012.
In the mean time I get to ride my Orbea CX bike to and from work across the Quantocks (in the rain tonight).

Posted 10 months ago #
mr plow - Member

Update - after another workmate in the office having the same issue the company have decided to leave their final payments as they were before it got confusing.

Posted 10 months ago #
karen805 - Member

I think it's worth while scheme, I've just bought (hired) my Whyte though it. In 12 months my employeer will transfer ownership to me, including the final 5% payment, I will have paid under £650 for a £900 bike.

Posted 10 months ago #
Aidy - Member

By the company giving the bike to the employee, they don't make any money on the scheme as the 5% paid is in tax and goes to the HMRC.

But they save money by not having to pay as much employer's NI contributions.

Posted 10 months ago #

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