CYCLE-TO-WORK SCHEME
HMRC clarifies “market value” of bikes sold at end of cycle-to-work loan period
HM Revenue & Customs has announced new guidelines aimed at simplifying the administrative burden for employers who implement the cycle-to-work scheme. But there are concerns that the changes could undermine the scheme and make it more expensive for employees.
According to the Cycle to Work Alliance, there are currently over 255,000 people taking advantage of the scheme. This involves over 650 bike retailers and 15,000 employers.
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The cycle-to-work initiative is a tax-efficient, salary-sacrificed employee benefit aimed at encouraging more adults to take up cycling. Introduced in the 1999 Finance Act, the scheme encourages employers to loan bicycles and cyclists’ safety equipment to employees as a tax-exempt benefit. Under the scheme, employers buy cycling equipment from approved suppliers, and hire it to their employees. After an agreed period (one to three years on average) of repayments, employees are able to choose to buy the bike from their employer at a reduced rate.
When the loan plan has ended, the employer can offer the employee the chance to make a fair market value payment - usually 5% of the purchase price (but often nothing) - to buy the bicycle from the employer.
But in mid-August HMRC issued a clarification on how employers should calculate the fair market value for the bicycle at the end of the hire period – and it was much more than 5%. Its new simplified valuation table suggests a bike which cost “£500 plus” has a disposal value of 25% of its purchase price after one year.
The Cycle to Work Alliance is worried that the scheme may now seem less attractive to employees, reducing its take up. It said: “The matrix does take into account the age of the bicycle, however it doesn’t consider its condition. This risks undermining the economic competitiveness of the scheme as it would unfairly penalise users, forcing them to pay an artificially inflated price for their bike at the end of the hire period.”
“Cycle to work is back in saddle”, says The Guardian’s Money editor
Lawyers have been busy scrutinising the wording of the HMRC’s latest update. So is there a “get-out”? Patrick Collinson, Money editor of the Guardian and the newspaper's personal finance editor, reckons there may well be. He writes: “You pay monthly, as planned, but at the end of the period you don't buy the bike off your company. You continue to hire it: for free.”
He asked HMRC for confirmation. It told him: "The statutory exemption for cycles loaned to employees is not subject to any time limit and will continue to apply as long as the conditions about use and availability are satisfied . . . HMRC sees no difficulty in the employee being offered the opportunity to buy the bike at a later date than had originally been expected, and using the market value percentage that applies at that later date."
Using the HMRC simplified valuation table, after three years, a £500 bike's fair market value is 12% of the original price, falling to 2% after five years.
--> “Taxman puts Cycle to Work back on the road”, by Patrick Collinson, The Guardian, 28 August 2010
www.guardian.co.uk/money/blog/2010/aug/28/cycle-to-work-scheme.
Want to know more?
EIM21667 - Particular benefits: bicycles: transfer of bicycle to employee
HM Revenue & Customs, August 2010
www.hmrc.gov.uk/manuals/eimanual/EIM21667.htm
EIM21667a - Particular benefits: bicycles: simplified approach to valuing cycles sold to employees after end of loan period
HM Revenue & Customs, August 2010
www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm
Salary sacrifice arrangements involving cycles and bus passes
HM Revenue & Customs, August 2010 (four-page PDF)
www.hmrc.gov.uk/specialist/cycles_bus_passes.pdf
Cycle to Work Scheme - Implementation guidance
Department for Transport, October 2009
www.dft.gov.uk/pgr/sustainable/cycling/cycletoworkguidance
Cycle to Work Alliance
The Cycle to Work Alliance brings together a group of leading providers of the cycle to work scheme, including Cyclescheme, Cycle Solutions, Evans Cycles and Halfords
www.cycletoworkalliance.org.uk