# Buying a Brompton under cycle 2 work...



## Twanger (8 Jul 2009)

...which I am thinking of doing.

The problem is that the "fair market price" of a second hand brompton means that I could end up buying the damn thing twice!

Has anyone got away with this?


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## jack the lad (8 Jul 2009)

I'm buying a Brompton under c2w. I'm not exactly sure what you mean by 'fair market price'. If it is the final purchase payment, just agree it in advance. Mine is a nominal payment, like it is under HP agreements, I think it's £1.


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## summerdays (8 Jul 2009)

As far as I know they can't agree a payment in advance as it then becomes an employee loan (? or something else anyway) and not exempt from the tax benefits. I think normally most companies end up charging about 1 extra month for the bike to become yours.


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## Twanger (8 Jul 2009)

jack the lad said:


> I'm buying a Brompton under c2w. I'm not exactly sure what you mean by 'fair market price'. If it is the final purchase payment, just agree it in advance. Mine is a nominal payment, like it is under HP agreements, I think it's £1.



Reading the blurb, it says that for the bike to be yours you have to pay a fair market price. Second hand Bromptons are like BMWs. They go for ludicrous amounts of money. I am posting here in the hope that someone will tell me that it is possible to convince the powers that be that a one year old second hand brompton can be bought on the open market for 50 quid or less.


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## Twanger (8 Jul 2009)

summerdays said:


> As far as I know they can't agree a payment in advance as it then becomes an employee loan (? or something else anyway) and not exempt from the tax benefits.



Yup. That's how I read it.


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## fossyant (8 Jul 2009)

It's about 5%


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## 2Loose (8 Jul 2009)

Every organisation I have read about using Cyclescheme doesn't bother looking into a 'fair market price' at the end of the scheme, but rather uses the suggested 5% of purchase value figure at the end. In my mind this is a lot of depreciation in only a year, but it is in the riders favour and no-one loses out. 

I know Cyclescheme is different from C2W, so I'd be interested to hear of anybodies experiences to the contrary?


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## jack the lad (8 Jul 2009)

This is what our scheme says

"At the end of that period, the employer can transfer ownership for a nominal fee which is currently set at 5% of the amount borrowed."

So it is agreed in advance, but a bit more than I thought it was.

There is no reason at all in law why agreeing a price in advance turns a hire agreement into a loan and, if my scheme can do it (and my employer is normally excessively cautious about tax issues) there is no reason why yours can't. 

My employer uses 'cyclescheme', if that helps.


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## gemsno4 (8 Jul 2009)

2Loose said:


> I know Cyclescheme is different from C2W, so I'd be interested to hear of anybodies experiences to the contrary?



We use C2W and it works that way - i.e. a %tage of the cost in month 13. Can't remember the percentage, but it doesn't matter what bike you have. I work for an accountancy firm so assume they have got it right


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## jack the lad (8 Jul 2009)

Remember also that 'a fair market price' can quite legitimately take into account that (a) you have paid an excessively high hire charge for the 12 month period - equivalent to the full cost of the bike to the employer, so it will have no written down book value to them at the end of the period;
( you have looked after and maintained the bike for that 12 month period at no cost to the employer;
(c) if you don't buy, it your employer will have to dispose of it and will incur costs in doing so.
So all in all it is 'fair ' to agree a nominal price and give your employer the certainty of a sale before they agree to hire a bike for you.

If you are being expected to pay full market price (as opposed to fair market price) you should pay a lot lower hire charge - but the tax benefit is on the hire charge, so you want that as high as possible and the purchase price as low as possible.


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## Downward (8 Jul 2009)

So it could be a good investment to sell on if never used ?


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## TheDoctor (8 Jul 2009)

Be a good investment to sell on even if it is!


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## trsleigh (8 Jul 2009)

When I got my Brompton on C2W the terms to buy it at the end of the hire period were £20 + vat or 3% whichever was greater. So my final payment to buy it was £32 . I could have refused to buy it, in which case it would have cost me £60 to have it taken away. Bit of a no brainer really.


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## Twanger (8 Jul 2009)

Thanks, that's what I needed to know.


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## Bromptonaut (8 Jul 2009)

Twanger, 

Talk to your HR people. I have exactly the same issue, at present my employer's (Ministry of Justice) line is that I should get a valuation from a bike shop. Their service provider suggest the equivalent of a further month's payment but HR say this is generic advice and their rule is based on discussions with the revenue. 

Intend to just keep using the bike and wait for someone to ask questions.


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## jonredhornet (9 Jul 2009)

I run the cycle to work scheme for our company (I use cyclescheme.co.uk) and I arranged a £1 final value for all bikes with the Directors when I set it all up. In all honesty though, nobody has ever had to pay the £1. We're quite a small company though, which makes things a little more relaxed. Like everybody has said above, just check with your HR dept. first or pre-agree a final value.


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## grhm (9 Jul 2009)

jack the lad said:


> This is what our scheme says
> 
> "At the end of that period, the employer can transfer ownership for a nominal fee which is currently set at 5% of the amount borrowed."
> 
> ...



To pick up on a couple of points. The "which is currently set at" is the legally cautious loophole. Should HMRC look at it closely next year and if the market decides that 2nd hand bikes are highly prized/pricy objects, then the company can change the final value. They've covered themselves if the fair market value of bikes is deemed more by HMRC - but have practically (but not legally) agreed up front what the cost will be.

I'm not sure about the legal side of it being deemed a HP deal or employee loan if the final price is set in stone up front - at which point it isn't eligable for the tax breaks a C2W scheme is. I've heard that this is the case, both from my colleagues and the internet - but I cannot tell if either of these sources have actually read/understand the regs.


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## jamesgibby (9 Jul 2009)

*8) Can the employee keep the cycle at the end of the loan period?*

There should be no automatic entitlement for the employee to take ownership of the cycle and cyclists' safety equipment at the end of the loan period. If the loan agreement (technically a hire agreement under the Consumer Credit Act 1974 (CCA)) allows for ownership of the cycle and cyclists' safety equipment to pass to the employee upon the exercise of an option, the doing of any other specified act by either party to the agreement, or the happening of any other specified event, the resulting agreement is likely to be hire purchase in which case the tax exemption available for a loaned cycle may not be available.
However, at the end of the loan period, the employer may choose to give the employee the option to purchase the equipment. 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 the employee must pay the employer the fair market value of the equipment. No tax relief is available to the employee for the purchase so, where the price is recovered from salary, it must be deducted from their net salary. VAT will also be payable on the purchase price by the employee on the supply by the leasing company or the employer as owner of the equipment.
Alternatively, the employer may wish to allow their employees to continue to use the cycles and cyclists' safety equipment you have supplied after the initial loan period has ended, without transferring ownership. As long as the employee continues to meet the conditions of the tax exemption (see section 4 above) no tax charge will arise.

*9.3 Not Hire Purchase - dealing with what happens to the cycles and cyclists' safety equipment at the end of the hire period*

Under a salary sacrifice scheme it is open to employers to sell ex-rental equipment. It is recognised that employers will often wish to do this, because it makes the scheme more attractive to employees. However, in order to obtain the benefit of the tax exemption the employers must not suggest that either the employee or any other person will later have the option to buy the equipment they have hired. Moreover, if the employer states that the employee will or may have this option, then the agreement will fall within the definition of hire purchase in section 189 of the CCA and may not attract the tax benefit. In addition, these agreements will fall outside the scope of the group licence and without the cover of a credit licence the employer may commit a criminal offence. The employer may at a later date exercise a discretion to sell to the employee.
We therefore advise employers that they can indicate in accompanying literature that ex-rental equipment may be sold for a fair market price, *but they should make it clear that they cannot commit themselves to doing so, either to the hirer or to his nominee. Any subsequent sale must be pursuant to a separate agreement, entered into after the conclusion of the hire.* 
Ultimately only a court can decide whether the agreement is hire or hire purchase.

The above is from the DFT web site, so if your employer agrees a cost in advance you don't get the tax breaks and they could be breaking the law.
Ultimately it is up to HMRC to prosecute a company if they think they are selling below the market value and for a court to decide if they are.

Currently HRMC seem to be happy with 5% as a fair market value but the risk is, the government wanting to raise some additional revenue and presuring HMRC to charge for the transfer of ownership as a taxable benefit.
Most employers would argue a fair market value, as what they could get at auction if they sold them as a job lot, rather than what you could sell an individual bike for on the second hand market.


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## jack the lad (9 Jul 2009)

grhm said:


> To pick up on a couple of points. The "which is currently set at" is the legally cautious loophole. Should HMRC look at it closely next year and if the market decides that 2nd hand bikes are highly prized/pricy objects, then the company can change the final value. They've covered themselves if the fair market value of bikes is deemed more by HMRC - but have practically (but not legally) agreed up front what the cost will be.



Not quite right. They have legally binding agreement up front with me that it will be 5% on my deal. "Currently set at" means that they will also agree that rate with other people if they sign up now, but it might not stay at 5% for future agreements. They can't change it for an agreement that has already been made as it has become legally binding in their contract with the employee.



> I'm not sure about the legal side of it being deemed a HP deal or employee loan if the final price is set in stone up front - at which point it isn't eligable for the tax breaks a C2W scheme is. I've heard that this is the case, both from my colleagues and the internet - but I cannot tell if either of these sources have actually read/understand the regs.



This is mixing up 2 completely separate issues. The schemes are based on a 'salary sacrifice' you have to give up some of your salary to hire a bike and you are not then taxed on the salary you have given up. If my employer lends me back that salary, and doesn't ask me to repay the loan, I haven't actually given anything up so I can't have the tax benefit. The tax man will look out for fiddles that are not called loans but effectively are, so you might get caught out if you try to be too clever, but this is absolutely unconnected with any above board deal on the end of scheme purchase price. 

Basically it is just a hire purchase agreement. These always involve agreeing a nominal price to buy the object at the end of the hire period. The concession for the bike schemes is simply that the HP payments are tax deductible (and interest free).


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## GrumpyGregry (9 Jul 2009)

if you can bear to ride a brommie for a year, and assuming your employer's VAT status means you avoid that piece of the cost of the bike via bike to work you should be able to sell on your 1 year-old Brommie at a very handsome profit at the end of the hire period.

Maybe one day the revenue will cotton on, but honestly, I really doubt they care.


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## grhm (9 Jul 2009)

jack the lad said:


> Not quite right. They have legally binding agreement up front with me that it will be 5% on my deal. "Currently set at" means that they will also agree that rate with other people if they sign up now, but it might not stay at 5% for future agreements. They can't change it for an agreement that has already been made as it has become legally binding in their contract with the employee.



In which case, your employer has bought you a bike and you are paying for it through your salary. This is the company loaning you the value of the bike and letting you pay it back over a number of months (plus a 5% admin fee).

Quoting section 8 of the DTF source (supplied by Jamesgibby above, cheers for that ): "the resulting agreement is likely to be hire purchase in which case the tax exemption available for a loaned cycle may not be available".

However, even the DTf source states *may not* be available. Even the aren't sure of the legal standing!





jack the lad said:


> This is mixing up 2 completely separate issues. The schemes are based on a 'salary sacrifice' you have to give up some of your salary to hire a bike and you are not then taxed on the salary you have given up. If my employer lends me back that salary, and doesn't ask me to repay the loan, I haven't actually given anything up so I can't have the tax benefit. The tax man will look out for fiddles that are not called loans but effectively are, so you might get caught out if you try to be too clever, but this is absolutely unconnected with any above board deal on the end of scheme purchase price.
> 
> Basically it is just a hire purchase agreement. These always involve agreeing a nominal price to buy the object at the end of the hire period. The concession for the bike schemes is simply that the HP payments are tax deductible (and interest free).



I think the loan part come from the fact that the company has agreed up front to sell you the bike. The bike is always going to be yours - they just bought it for you and your paying them back. That's were the confusion come in - before the governments terms seems to state it they expect it to be a hire and not a loan.

That most/all companies will provide the option to purchase at the end is almost assumed. But there seems (to me) to be the requirement that the purchase at the end is an option. The last DFT paragraph in blue above (at the end of section9.3) seems to suggest the employers can say that is what will probably happen but must not guarantee the sale will happen.


I think its stupid legal hoops to jump through - why should any employee pay for the bike over the hire period and not be entitled to the bike? I think common practise and strictly legal dont agree, but think that common practise is right.

Not that any of this actually helps the OP - I think you'll be alright buying the brommie and will only have to pay ~5%, but don't expect to be given cast iron guarantees up front.


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## Twanger (9 Jul 2009)

Just had a chat with the managing director, who is also using the opportunity to get himself a new tourer. He said 5%.

My feeling is that the whole thing is a legal conundrum wrapped up in a mystery that will go pop if investigated too hard so let's just go with it.

Thanks everyone for your comments. I'll pop down to order my Brompton next week.


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## GrumpyGregry (9 Jul 2009)

just got the invoice for... let me see... 5% from my HR peeps. Must be time for a new bike.


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## PBancroft (9 Jul 2009)

I've got two options from my place of work. Currently they offer 0% loans for bikes (maximum is £500) or the Cycle To Work scheme, which they are hoping to roll out in September. I don't know what the terms are going to be yet.

Thing is, I could really do with a new bike now. The GT has served its purpose. It will still be a good heavy duty winter bike, but not an every day machine - its too heavy, the wheels are too small, and frankly I'm fed up with having a wobbly Topeak beam rack. I need a proper set of panniers, with actual fixings!

What to do, what to do...


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