Cycle to Work Schemes (and the taxman)

[ChrisKH]

Not sure if this has been covered off in any other posts, but I was just catching up on some reading and came across several pronouncements by the Inland Revenue that were made in December/January concerning Cycle to Work Schemes.

In brief they are:-

HM Revenue and Customs are warning that some cycle to work schemes on offer don't pass the necessary tests to qualify for tax exemption. The exemption applies provided the bikes and equipment are made available to all staff. Because the schemes involve a salary sacrifice, which ensures there is no cost to the employer and the employee is required to sign an hire agreement regulated by the Consumer Credit Act, this means some employees are effectively excluded - so employees under 18 years old are excluded on the basis that they can't sign an agreement and employees whose salary is below the minimum wage will not be able to take part in the salary sacrifice.

So if either of these circumstances (employees < 18 years or minimum wage employees) arise, tax exemption may not be available. If conditions are not met, a P11d benefit arises, this could mean an extra tax bill for those who made an agreement after 18/12/09.

HM Revenue and Customs have also warned that a number of schemes involve the bike being sold at the end of the agreement for a notional amount. HM Revenue and Customs are saying this is misleading and there are no special arrangements or tax concessions if the bike is sold for less than market value. If this does happen, the difference between market value and the notional value is subject to tax (and employers class 1A NIC's). The guidance they are giving is that bikes must be individually valued at the time of sale and sold for this amount or tax is due.

My advice:-

Check with your employers that your scheme valid

If you have entered into an agreement after 18/12/09, point out the potential for deficiency in the scheme to your employer.

If you acquire your bike at the end of an agreement for a notional amount, take reasonable steps to value the bike prior to sale and buy it for this amount.

Do not assume that your employer will know this or care. They will not necessarily have to pay the tax if it goes pear shaped (although they may be penalised for improper or incorrect P11d entries). You will.

I can send a link with further details on request.


If anyone is aware of further developments on this matter since January, please let me know.

 

[MrGrumpy]

hmm Royal Mails C2W scheme involved paying a final sum of £35 irc ?? its collection and disposal charge! They better no come to collect my last one its had plenty cash spent on it.

 

[Chrisc]

This is exactly the reason that we didn't get it. It applies even if someone only works one hour a year as a part timer and as they can't possibly qualify it invalidates the scheme for everyone. The change in IR rules effectively makes it impossible for most firms to run the blasted thing legally. FFS!

I just bought me own, easier.

 

[Bman]

Im removing all the replacement parts I paid for when I get my bike valued.

It wouldnt surprise me if a few more things go wrong before then too

 

[catalan chris]

My Company has just launched its C2W scheme (using cyclescheme as the third party administrators).

I got heavily into the precarious nature of the soundbites (eg: get a bike tax free) - and the individual (and the Company to a lesser extent wrt to NICs) is quite exposed wrt a potential unforeseen tax liability.

I got into an e-mail (and eventual telephone dialogue) with the cyclescheme uk chaps and they said they about to publish a set of priinciples that they will operate at the end of the scheme in the event that the renter wishes to purchase the cycle.

[Remember that if it is pre-agreed that the renter will buy the bike and/or there is a pre-agreed formula to derive the purchase price then the scheme will fall foul of the Tax Laws and no longer qualify as tax exempt (ie: it will be treated as a benefit in kind).

Cyclescheme are about to be involved in the cycle -to- work scheme for the HMRC (!!!) so once these principles have been agreed in that arrangement hopefully we can have a high degree of confidence that they produce the desired result and that cyclescheme will share them with other third party adminstrators or indeed the HMRC will issue clarification/guidelines. I also alerted the CTC sus out the implications of the December 2009 HMRC notification (which apparently stated if the bike is not sold for it's full market value then the difference between the sold price and the FMV will become taxable and the liability of the participate/employee. They said a month ago they are going to look into it.

 

[ACS]

My employer has puuled the scheme for this reason. I thought the Head of Finance was just being lazy but the reasons he gave are reflected in ChrisKH opinion above.

For the time being my company plans to retain possession of the bikes and let those of us who have purchased through scheme unrestricted use on the understanding that if we use the bike for 'business purposes' we do not claim mileage.

This may change of course, but at present the Head of Finance thinks that this money grabbing tactic by HMG is flawed and the best policy is to do nothing.

 

[GrasB]

Just how do you work out a fair market value for the bike though?

 

[ACS]

Just how do you work out a fair market value for the bike though?

The SWAG method ( Sophisticated Wild @rse Guess )

 

[killiekosmos]

My friendly HR colleague told me yesterday that the C2W scheme is being stopped (closed to new purchases) because of the HMRC advice. As we cannot offer the scheme to all staff. Some are under 18 and others would be below minimum wage if they joined.

So much for the government wanting to encourage cycling. Could the rules not be changed? This could affect other salary-sacrafice schemes such as childcare vouchers.

I wonder if it is worth contacting MPs about this? It seems a backward step.

 

[Chrisc]

My friendly HR colleague told me yesterday that the C2W scheme is being stopped (closed to new purchases) because of the HMRC advice. As we cannot offer the scheme to all staff. Some are under 18 and others would be below minimum wage if they joined.

So much for the government wanting to encourage cycling. Could the rules not be changed? This could affect other salary-sacrafice schemes such as childcare vouchers.

I wonder if it is worth contacting MPs about this? It seems a backward step.

It's costing more than they anticipated and they have to claw back the money they poured into the pockets of those bast sorry bankers from somewhere... Killing it quietly is easier than pulling the plug in public.

 

[MacB]

It's not as big a loss, moneywise, as it may appear on the surface. Like a lot of government initiatives it was big on headline benefits but the reality was quite different. For a lot of people the main benefit was deferred payments. A lot of the savings were swallowed up by having to pay full retail, or an admin fee on top, and not having access to any discounted deals, plus the final payment. If you have cash up front then you can easily get deals that rival the C2W scheme for price. As usual the biggest winners would have been those able to go as high as they liked pricewise, if their company had the necessary credit licence. Funnily enough that would have involved a lot of financial institutions, times have been tough for the bankers you know.

The crying shame is that the facility really did get folks thinking bikes that probably wouldn't have considered them otherwise.

I'll be interested to see how they try to argue the toss re benefits in kind/P11D stuff. That could create all sorts of shennanigans as people try to wriggle out of stuff.

 

[ChrisKH]

My employer has puuled the scheme for this reason. I thought the Head of Finance was just being lazy but the reasons he gave are reflected in ChrisKH opinion above.

For the time being my company plans to retain possession of the bikes and let those of us who have purchased through scheme unrestricted use on the understanding that if we use the bike for 'business purposes' we do not claim mileage.

This may change of course, but at present the Head of Finance thinks that this money grabbing tactic by HMG is flawed and the best policy is to do nothing.

Probably wise.

I have yet to see, over a period of some 25+ years, forms P11d being challenged by HM Robbery, except in very clear cases where companies were wilfully negligent. The truth is they just don't have the resources to do it for every company and are relying on people getting worried enough about these edicts to change things before they are challenged/investigated. Having said that, they are now diverting their resources and targeting specific areas for "additional revenue collection". I have a visit this month from one of their chappies and he only visited 18 months ago (usually they come every six years or so). He was desperately keen to come and see me, so I can only assume he thinks we may have been negligent in some area. Poor chap's going to go home empty handed.

 

[magnatom]

Uuggh! I'm not so worried about the C2W scheme, personally (I've finished paying mine), I'm more concerned about the chidcare vouchers. They make a big difference to us, and if this gets pulled, we will be significantly worse off.

It does seem like a underhand way of killing the schemes..

 

[bobbyp]

I've been looking into this C2W thing and wondered how it worked. This post seems to fit what I'd worked out.

The company buys a £1000 bike and leases it to me for a year. For this I pay them £600 or whatever. At the end of the year I may be offered the bike at a fair market value. I would hope that a £1000 bike would be worth say £500 at eth end of the year. So I should pay £1100 for a £1000 bike?

Have I missed something?

 

[MrMonster]

I did read the OP, but it didn't make much sense to me and I was hoping I could use the C2W scheme to get me a good bike..
Only problem is i'm 17 years old and only work part time, about 20 hours a month, which also means I earn less than £6000 per annum. Does this mean I don't qualify for this scheme?