[Closed] C2W Scheme - new Market Valuation guidelines published.

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 🙁

[b]allthepies[/b] - no, the point [b]druidh[/b] was making is that you need to pay tax [i]ON TOP[/i] 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 - Member

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.

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. 🙄

[url] http://www.bikebiz.com/news/32690/HMRC-spanner-thrown-into-wheel-of-Cycle-to-Work-Scheme [/url]

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.

Toons - show your workings

jamesy - yes, but I very much doubt many employers will go that route, as it is extra work for payroll, P11D returns etc, and would probably be viewed by HMRC as using a loophole

Druidh see the post above mine.

£850 + £84 final fee = £66 saving!!!

IMO the scheme should be changed so that hire of the bike is over 3 years and bike deemed to be worth a nominal amount after that time.

batman how come you only have the final figure now after 3 years?

Toons you are mis-reading that post. Typically you would save income tax and VAT on the 1,000 - so the bike cost is around 625 plus the final payment of 50. That is a saving of 325.

tiger_roach - Member
IMO the scheme should be changed so that hire of the bike is over 3 years and bike deemed to be worth a nominal amount after that time.

There speaks sense.

I got a bike though the C2W scheme a year and half ago. I haven't paid for the final marketet evaluation yet. Previously my understanding was that the bike would still on loan from the company to me. But reading the link below it seems that for the bike to be "on loan" it needs to a bike that is available for use by other employees and part of a cycle pool.

[url= http://www.hmrc.gov.uk/manuals/eimanual/eim21664.htm ]linky[/url]

So it seems you need to pay up at the end of the scheme otherwise the "loan" of a C2W bike is a benefit in kind from the POV of the taxman.

i paid my 12 payments then my purchase valuation was the same amount that was getting sacrificed per month plus tax. and i got the bill for that 6 weeks after my final wage deduction. i presumed all were similar to that

The HMRC says companys "May" adopt their suggested valuations ie.25% after a year.

It does not say you have to.

In my case we wont be adopting their vaulation. We will do our own. The bikes will be worth bugger all after a year.

It's funny really, Id wager most of you have bought expensive mountain bikes under the scheme rather than an actual commuting bike and now you are moaning its not fair or worth doing as you may have to pay a little more at the end. Seems to me you are milking the scheme which could well have had an effect on them changing the rules?

As for higher tax rate payers being able to abuse the scheme too, it shouldn't be open to them.

fwiw I used the scheme 2-3 years ago to buy a folding bike to actually commute to work on and have not paid a final payment to own the bike. I dont mind the company keeping it as I didnt use the scheme to part finance my nice mountain bike/racer.

Id wager most of you have bought expensive mountain bikes under the scheme

Spesh Tricross Singlecross that I use every day to commute to work on actually...

As for higher tax rate payers being able to abuse the scheme too, it shouldn't be open to them.

How would you legislate such?

As for higher tax rate payers being able to abuse the scheme too, it shouldn't be open to them

Why?

I wonder how the new guidance will affect the bike shops. I'd wager the increase in business has been significantly greater than the value of the bikes sold through folk getting into cycling generally.

And sure some of the folk on here will have bought bikes other than to commute on, but one of the bigger benefits has got to be more folk on bikes on general.

Maxray, as a higher rate tax payer, why shouldn't it be open to me?

For what it's worth, I did buy a £2k bike on the scheme, which has seen approximately 120 miles a week commuting for the last 7 months and approximately 30 miles riding it for pleasure in that whole 7 months as I have a top end road bike for that.

So, where in your opinion did I go wrong, and why shouldn't I have used the scheme?

I suspect the the vast majority of bikes bought on the scheme are in the £250-350 bracket so the new valuations will have little affect for most

it'll only be 'the end of the scheme' for those that were probably cyclists to start with & maxed out the available amount they could spend

The issue is that high rate taxpayers benefit more than the lower rate, when it should probably be the other way round. Closing it to the higher rate tax payers isn't really the best way to solve that one.

I can feel the headache coming already....

Matthew

Right your company will have 3 options (this is down to your company, not the provider such as Halfords/Cyclescheme, we will advise)

1 - At the end of the hire period charge you the 25%

2 - Extend the hire period to say 4 years - You still pay for 12 months but the bike will remain property of your company until the 4th year.The value of the bike at this time will be minimal so the company could write it off or you could pay the value of the bike at that time.

3 - Charge you part (say £50) of the 25% (lets work on £1000 here) so 25% = £250 - £50 = £200 = The figure you'll pay tax on via your P11D

It is not "the death of the C2W scheme" or anything like that at all. Infact all the companies we have been briefing about it have welcomed it and taken to it positively as they now have some firm guidelines to operate from instead of the previous ambiguous ones.

The only real area that i don't have an answer to at the moment is whether it is going to be applied retrospectively - So if you are still in your hire agreement term and haven't made any final payment then this *may* apply to you (myself included)

Thanks for clearing it up a bit, Houns.

Id wager most of you have bought expensive mountain bikes under the scheme rather than an actual commuting bike

I bought a cargo bike, that I use for riding to work every day. (Well, the days when I am at work.)

Pretty much all my colleagues who have bought a bike under the scheme have bought relatively modest bikes, which they use to get to work.

The bulk of the people who made use of the scheme will not be MTBers using it to get a bike on the cheap, or cheating the system to buy forks or posh wheels or whatever.

I thought the idea was to encourage those who might not normally cycle to work to do so. If there is no saving on the cost of a bike regardless of whether its a £200 bike or £1000, people won't be inclined to do it.

Would the tax office not save more by doing less farting around with the guidelines than what they lose on any taxable benefit a few cyclists might gain from the scheme?!?

If there is no saving on the cost of a bike regardless of whether its a £200 bike or £1000, people won't be inclined to do it.

You still save money on the scheme.

You don't have to pay 25% of the bike's value at the end, but anything you pay less than that is classes as a taxable benefit.

If the bike was £400 new, the buy back 'value' is £100. But, you don't have to pay that. If you only pay £20, you are getting an £80 'benefit' from your employer. So you have to pay the income tax that you would pay on £80 of earnings - £16?

If the bike was £400 new, the buy back 'value' is £100. But, you don't have to pay that.

Will you tell my employers that please? I'll have to pay whatever they decide to charge. I suspect that more than a few will charge 25% as that's what HMRC recommend.

I understand the point you're making, I just think the view that you waon't have to pay any more is a little "rose-tinted"

What mike said....Some employees could end up paying [i]less[/i] under the new regs than they would previously

Surely it cannot be applied retrospectively? Bit of a kick in the teeth if so.

It is not "the death of the C2W scheme" or anything like that at all. Infact all the companies we have been briefing about it have welcomed it and taken to it positively as they now have some firm guidelines to operate from instead of the previous ambiguous ones.

Mmmmm - so now, firms can stipulate that they are going to charge 25% of the purchase cost after 1 year to recoup some of the admin charges.
All well and good for the firm - a bit less attractive to the person buying the bike. Seems like a pretty good get out clause for less than keen firms to me.

Surely it cannot be applied retrospectively? Bit of a kick in the teeth if so.

It's a change in guidance, not rules. It can be applied to any active agreements. I'm not sure it could be applied to ones that have finished - except for in the current tax year perhaps.

firms can stipulate that they are going to charge 25% of the purchase cost after 1 year

AKAIK, it it against the regs to agree a 'purchase price' until the end of the hire agreement, the emphasis being on the word hire - it is not a purchase scheme. At the end of a 12 month hire you have the option to purchase the bike or give it back; your employer will suggest a purchase price, you decide..

Will you tell my employers that please? I'll have to pay whatever they decide to charge.

Well, it is their bike...

Hehe, will give my employer more reason to extract even more £££ from us. They already pocket the VAT on the scheme rather than pass it on to the employees.

Max I bought a road bike as I use the road to get to work 🙂

Presumably the LBS you bought it from will value it? In which case your LBS should be able to value it accordingly. I guess it is better for those of us with 18 month periods.

AKAIK, it it against the regs to agree a 'purchase price' until the end of the hire agreement, the emphasis being on the word hire - it is not a purchase scheme. At the end of a 12 month hire you have the option to purchase the bike or give it back; your employer will suggest a purchase price, you decide..

Well yes, but if there is Government issued guidance on what to charge, why would the business decide otherwise - especially with the tax implications.

geoffj - agreed, what I meant is they aren't obliged to agree the fig up front. This has implications for people (like me) on a current scheme. Up till last week I was expecting to be offered to buy my bike for around £25 in Nov, now I expect I will be offered it for around £175. The Company Policy says 'fair market value at the end of the hire period'

As an NHS worker, the benefits fromt he scheme are even less, regardless of higher tax payments (not sure why this is - something to do with NOT getting tax off the original purchase price).
I worked it out, and before this "25% malarkey" I figures, on a 1k bike, I would end up paying [i]about[/i] £800 ish, plus the 'final payment'.

I relised it wpouldn't really be worth it seeing as I'd pay full RRP on whatever I got, whereas 'last years' bike could be had for roughly 30% off...

DrP

So if the bike was valued by the supplying retailer, it would make sense not to look after you. There's a great ethos to encourage!

A lot of fannying around and seems like a lot of abuse of the scheme. Would be easier just to make firms offer a 200 quid interest free loan or a lower rate of VAT on the first 200 quid of any bike purchase.

I'm choosing 200 just because it's the price of a perfectly good hybrid that anyone could commute on and if people want something more flashy, they should pay for it themselves.

Ah well, at least I've had a couple of nice bikes out of it. Was planning a third, but you can't have it all I suppose

As an NHS worker, the benefits fromt he scheme are even less, regardless of higher tax payments (not sure why this is - something to do with NOT getting tax off the original purchase price).
I worked it out, and before this "25% malarkey" I figures, on a 1k bike, I would end up paying about £800 ish, plus the 'final payment'.

Same here as a University employee my saving is nearer 20% than the advertise 40-50%. I've got a couple of months left to run on a scheme and hope they sort out this apparent confusion before then as otherwise I'm worried I'll end up paying more than £1000 for the bike overall!

Ah well, at least I've had a couple of nice bikes out of it. Was planning a third, but you can't have it all I suppose

It's folk like you.....

It's folk like you.....

Who ride to work every day?
Who don't even own a car?
Who have ridden c2w bikes for over 50% of use on the commute?

Look, I commute about 300 miles a month. There's no way I'm doing that on a £200 lump. Ironically, I'm currently doing it on neither of my c2w bikes, which is why I need a third one 😉

I have tried explaining this stuff before but I will try once more. I have not been involved in any schemes but I have the misfortune of understanding tax law. If your employer provides you with a benefit in kind - say a car for private use, pays your kid's school fees etc - you are taxed based sometimes on set rates (cars) or otherwise at the cost to the employer of providing the benefit. That is the background.

So when your employer allows you to buy the bike for a certain price at the end of the lease they need to work out whether you have been received a benefit. With the new guidance, employers now know precisely how much the benefit is and will report it according. The benefit being the difference between what you pay and the value determined by the guidance note. There is certainly no [u]obligation[/u] for the employer to charge this amount and it would be a pretty stupid and short sighted employer who went back on what was no doubt said when the employer set up the scheme.

As far as the retrospective nature of the guidance, the point of charge is the time the bike is transferred so if the bike has not been transferred yet I would envisage the employer would apply the guidance from now on to all transfers. As far as the past is concerned, this is where my knowledge is not as good but in general terms if the value used to transfer is the bike was transferred is challenged by HMRC it will generally be the employer's problem for failing to report the right amount of benefit and I don't think they have any come back to the employee. This will likewise be the case if companies choose to ignore the valuation table in the future and can't justify their valuations.

Of course as Houns has said the simple solution is to continue to hire the bike to the employee for no cost for a further period until the valuation is equivalent indicated but not agreed final purchase price. Alternatively if you want a bike every year, you buy at the end of one year and take the hit and accept if you want multiple bikes you only get 75% of their cost tax free, subject to VAT which will depend on how the employer treats the initial purchase. (20% will apply to transfers that take place after that rate comes into effect.)

Surely it cannot be applied retrospectively? Bit of a kick in the teeth if so.

I don't think it can. You've signed a contract detailing terms and conditions. This cannot be changed without your permission.

I don't think it can. You've signed a contract detailing terms and conditions. This cannot be changed without your permission.

The Ts & Cs haven't changed - the guidance has. There was little guidance about what FVM was - there is now.

So it can be applied to current agreements IMHO.

If it's just guidance, then it can be ignored no?