Urgent warning for anyone who has or is about to sign up to Cycle to Work

Wasn't the grand supposed to be bike and cycling equipment/clothes?

equipment = safety gear (helmets, hi vis) lights and locks, not clothing SFAIK although I'm sure there were plenty of retailer loopholes.

and it wasn't compulsory, lots of people just bought 1k bikes (that they sold straight away, or bikes that weren't in any way connected to riding to work)

1k at full RRP doesn't add up to a huge amount of opulence if you do factor in all equipment as well (helmet, shoes, lights can set you back £200+ without even blinking)

all over the papers today HMRC reckons that a £500 bike will be worth 18% of that a year on, for bikes more than that depreciates to 25% of its value after a year,

too much of a good thing for too many people it seems, typical the government crack down on that-bastards

best (and most egalitarian) way to encourage cycling (to work and otherwise) is to zero-rate vat on bikes and accessories. cyclescheme was over-complex and a bit of a gift to those with full-time jobs and high salaries...

yep ^^, glad to see there are those even more idealistic than me still around, keep it up.

Thinking about it... it doesn't matter. The scheme has kickstarted a cycling movement and rejuvenated retail and development around cycling. There's no reason to expect that once it's fulfilled those objectives that it should continue to run as a tax-free subsidy. Cycling should now have it's own momentum to keep itself growing. If it capitulates because of a removal of subsidy it was a pretty weak movement.

fair points^^, the press say that 400, 000 people have used the scheme, which may or may not be true. Not many bike sales out of the total upswing in bike sales however,
there could be a few potential buyers now put off of getting something that they otherwise wouldnt have bothered with, but like you say it wont make have too much impact,
(there seems to be an even bigger section of buyers in the £1000 + bracket (middle aged blokes mainly (and interestingly reportedly partly because you can maintain a bike) keeping bike sales massive)

Thinking about it... it doesn't matter. The scheme has kickstarted a cycling movement and rejuvenated retail and development around cycling. There's no reason to expect that once it's fulfilled those objectives that it should continue to run as a tax-free subsidy. Cycling should now have it's own momentum to keep itself growing. If it capitulates because of a removal of subsidy it was a pretty weak movement.

That's true but I don't think people (or me at least) are looking at the bigger picture in that way - I'm just annoyed that I've signed up for something I thought was going down one way, and it turns out that actually it might end up something totally different.

All in the game tho' baby.

I'm 8 months thru a 12 month scheme on a £1000 worth of bike plus equipment...looks like I'll have an expensive month at end of year now (just in time for christmas, yay!)

what i fail to understand, forgive me for my ignorance - is who exactly is going to benefit from this extra money I will now have to pay at the end - presumably my employer (as they own the bike, and the final payment is to transfer ownership to me based on residual value)...if so, why the fuck does HMRC care? Nothing in it for them, not therefore a 'tax loophole'? I'm sure I have this wrong somehow, but would just like to understand the motive behind this from HMRC perspective.

I have read some of the posts on this subject and cunt quite get the jist of whats goin on as i am a townie. when i buy a bike from the scrap yard th tax man dosnt get involved in what i ride. I am a businesss owner and dont declair any cycling expenses even thogh i get the full benefit of the fitness that comes with cycling. What is all this bxxxxks about. Please fill me in as i am only a townie

As a business owner you cannot sell on used assets for less than their market worth. The bikes are owned by the business and hired to the employee. At the end of the hire period so far businesses have disposed of the bikes for no cost declaring that the worth is below the amount taken during the hire period. Rolls Royce operated a huge C2W scheme and the taxman got suspicious about this write-down of assets and investigated and decided that the depreciation is less than expected and that the business shouldn't value the bike at less than 50% worth after only 12 months... they took the view it should be 75% worth. What this means is that either you have to buy the bike from your employer for the remaining cost of 25%, or that you received a perk from your employer to the tune of 25% of the value. If the latter then the taxman hits you with a bill as you received a taxable perk, and if the former your company hits you with the bill. All because, a company isn't allowed to dispose of assets for less than their market worth, and what has been subject to interpretation is the market worth of a 2nd hand bike after 12 months.

Employers may still 'tweak' their schemes to adapt to the new rules. The 1 year Rolls Royce scheme has just had an optional free hire period added to the end of it. This is where you sign a second agreement and continue to hire your bike for another couple of years but with no monthly cost. Then you transfer ownership after three years rather than one at a lower market value.

Thanks Velocio - and Ramaye that is an interesting point

the only other tweak i can think that may be appropriate is that the 12 monthly payments (which in my case = £1000 in total) could be reduced so that the monthly payments = 75% of the value of the package, then the 25% payable at the end makes it up to the total amount that the 'loan' was for, so the employer does not lose out, and meets the requirements for appropriately valuing the asset for the purchase of the used equipment.

Not aware of any requirement that says the monthly payments must equal the amount of the loan? Surely the employer can 'rent' the equipment out for whatever they want?

We recently had a demo by a provider who mentioned this, they are just going to ask for a picture of the bike at the end of the scheme, if the bike looks covered in mud and like it's not been looked after they will be charging well below the hmrc guidelines.

This is the thing to remember, it's just guidelines, if you can provide good reason why the bike is worth less you shouldn't have to pay as much. (the brakes broke so it's not road legal anymore... It's been in a crash...)... Also of note:

This approach cannot be used for cycles with special value even if, exceptionally, such cycles have qualified for the exemption in section 244. Cycles with special value are those whose value is higher than for other second hand cycles because of special and unusual features or provenance. For example, this approach cannot be used for antique or collectable cycles, for expensive specialist cycles that have been individually hand built to order,
so everyone should just get a made to measure frame and then claim it won't fit anyone else :)

Employers may still 'tweak' their schemes to adapt to the new rules. The 1 year Rolls Royce scheme has just had an optional free hire period added to the end of it. This is where you sign a second agreement and continue to hire your bike for another couple of years but with no monthly cost. Then you transfer ownership after three years rather than one at a lower market value.

Looks like HMRC have sanctioned this type of tweak, from Guardian last Saturday:

http://www.guardian.co.uk/money/blog/2010/aug/28/cycle-to-work-scheme

[FONT=Times New Roman][SIZE=3]"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." After three years, a £500 bike's fair market value is 12% of the original price, falling to 2% after five years, says HMRC.[/SIZE][/FONT]

I fail to understand why bikes should follow a depreciation pattern different fro mmost everything else. Usually the more expensive, the quicker things depreciate. Here the HMRC have decided that a £1000 bike will depreciate slower than a £500 bike. It's bollocks.

However. Starting the scheme on Jan 2nd with 20% VAT will make it a little less bad.

Bumping this as my cyclescheme agreement is about to come to an end. I will be paying 7% on £1k when it does, as a deposit to continue using the bike for 4 years. At the end of those 4 years, the deposit is released, and ownership transferred to me. The arrangement doesn't prohibit new agreements in consecutive years.

Mine ends in November and having just handed my notice in I will also be leaving around then.

I've been informed it will be a percentage in line with HMRC, I'm presuming this will be the 18% as the bike itself (Fuji Track) was under £500. Not sure if the total amount will be taken into consideration though, which with lights, lock, clothing, brakes etc came in considerably higher.

BikeBiz has a story on how the new rules are better for everyone, based on re-working the model with an example from Evans. The outcome is a short term payback linked to a long term hire agreement as braker seems to have. The company seems to benefit by writing off the depreciation value of the bike. The downside is that you have to stay with the company or pay out when you leave as for Ark Minor

I avoided this price hike thankfully. My 12 months are up and my employers are taking a payment from my next pay packet so that I own the bike, and that's working out as about £35 on a £600 or so purchase.

Unfortunately, my flat mate who works for our county council and was a few weeks behind me, has just today been stung for £155 on a £650 purchase!

He's not happy.

not sure who's responsibility it is to determine how and when to implement the changes - I got an end of scheme notice this week, informing me that I can make one further payment equal to one monthly payment (i.e. about 8% of total cost of package) to take ownership, so this is fine with me.

spoke with HR today - they said that the scheme provider had written to them about the new HMRC guidelines and stated that they were not making any changes, so HR has just gone along with that...

My bike got nicked - and the insurance are only paying out 80%. So the original amount I "borrowed" to cover lock and lights is now way over the amount Ive got for a new bike - but of course i am still paying the original amount. I wish I'd just bought mine cash.

1) Why are they only paying out 80% ?

2) Surely you will have saved more than 20% through the scheme?

I avoided this price hike thankfully. My 12 months are up and my employers are taking a payment from my next pay packet so that I own the bike, and that's working out as about £35 on a £600 or so purchase.

Unfortunately, my flat mate who works for our county council and was a few weeks behind me, has just today been stung for £155 on a £650 purchase!

He's not happy.

That'll be 'cos the County Council is skint, whereas where you work isn't.

You should buy your housemate a beer to cheer him up.

Cash sale innit.
I suppose I could charge them 25% storage fee to cancel out the 25% sale price. How would IR deal with that?

Or pay tax on the 25% 'benefit' the HMRC say you have had if you don't pay that balance.

The 25% storage fee you'd receive would be miscellaneous income, chargeable to tax but not NIC. You'd be in the same position as your work slapping the 25% on your P11D

So in summary, regardless of when you signed the contract, from this week onwards you will receive a 25% charge at the end of your rental agreement to take ownership of the bike, plus the admin fee?

No, HMRC's tables are just there to clarify what they think a bike is worth after a certain length of time and should be seen as the values that they won't question. If you want the bike for less, be prepared to have some sort of evidence if HMRC check up on you.

I think that if you're a higher rate tax payer, and you buy a bike for a grand, then you still stand to save between £250 and £400...

But yeah, for those earning a regular salary and buying a bike over £500 it seems like you could get fucked over.

It's also unclear what happens if you used the £1,000 allowance to buy a bike significantly over that sum, presumably you'd only pay 25% on the first £1,000 of the bike (that which your company owns)... otherwise you'd be in for a really nasty surprise when your finance director tells you he wants 25% of a £2k bike that you part-bought on the scheme.

The saving is pretty much wiped out for all people on all income levels, with it being more expensive for people whose employers can't reclaim VAT (I think; I did some calculations months ago, can't remember what happened in all the scenarios).

The value transferred by your employer would need to be calculated. Personally, I think that there is an argument that says that if a bike is worth 25% of its original value after a year, depending on the circumstances in which you "topped up" your voucher, it might be that you could knock this amount off of the 25% meaning that if you bought a bit for £1,333 or more, you'd not have anything to pay at the end.

Bit aggressive though, be prepared to argue about it with HMRC.

I was trying to find some dumb reason to use my voucher since it seemed like such a bargain. The combination of a poor selection in the price range that I have and this change makes it extremely likely that I'll not bother to use it. I'm happy to buy another bike if it's a bargain (always chasing the N+1) but if it's no longer a bargain I really have to want the bike.

If you owned a company, the company could buy the bike and lend it to you with no tax consequences. If you're not in a hire arrangement (i.e. salary sacrifice), the £1,000 limit can be ignored.

This is bullshit. A huge pile of bullshit. I used the scheme because I couldn't afford a bike any other way, and now I'm going to be fucked over anyway. Brilliant. I need someone responsible to blame/insult/threaten.

Just don't buy it at the end. Easy, 25% charge avoided.

You were never meant to be able to buy a bike over a grand.
You shouldn't have been able to add your own cash to the £1k voucher limit as you hire the bike from your employer and you can't hire something that you own part of.
The reason the limit was set at a grand was that that should be more than enough to buy a very decent commuter bike and the limit was placed to stop people buying bikes for competition.
It's just another part of the scheme that was never implemented properly.

I didn't think you could buy anything over a grand on the scheme. As I understood it, the scheme was only for bikes under £1000. That was why all the standard-build Chris Boardman bikes were priced at just under a grand, to catch the top end of the cycle to work people.

^ employers running own scheme can apply for consumer credit license = no limit.

The £1,000 is a credit law thing, as Steve pointed out. Nothing more, nothing less.

tough shit.
i can't see any reason why working people should have tax breaks to buy bikes, if you can a afford to buy a 1k bike for £500 then i don't see the need for a subsidy when a £500 bike will get you to work and back (as would a cheaper second hand bike).

I don't see why people should only pay a maximum of 28% CGT. This is a very minor "tax break" in the grand scheme of things.

best (and most egalitarian) way to encourage cycling (to work and otherwise) is to zero-rate vat on bikes and accessories. cyclescheme was over-complex and a bit of a gift to those with full-time jobs and high salaries...

I agree with this, especially as it currently puts the public sector at a bit of a disadvantage.

I'm 8 months thru a 12 month scheme on a £1000 worth of bike plus equipment...looks like I'll have an expensive month at end of year now (just in time for christmas, yay!)

what i fail to understand, forgive me for my ignorance - is who exactly is going to benefit from this extra money I will now have to pay at the end - presumably my employer (as they own the bike, and the final payment is to transfer ownership to me based on residual value)...if so, why the fuck does HMRC care? Nothing in it for them, not therefore a 'tax loophole'? I'm sure I have this wrong somehow, but would just like to understand the motive behind this from HMRC perspective.

I think that it's just a general "abuse" crackdown, and the additional tax comes from the fact that a higher residual costs means you have to earn more (and pay more tax) to be able to meet it out of your net salary.

Alternatively, if it goes on your P11D, the tax on the benefit is five times as much on 25% as 5%.

I have read some of the posts on this subject and cunt quite get the jist of whats goin on as i am a townie. when i buy a bike from the scrap yard th tax man dosnt get involved in what i ride. I am a businesss owner and dont declair any cycling expenses even thogh i get the full benefit of the fitness that comes with cycling. What is all this bxxxxks about. Please fill me in as i am only a townie

As a business owner you cannot sell on used assets for less than their market worth. The bikes are owned by the business and hired to the employee. At the end of the hire period so far businesses have disposed of the bikes for no cost declaring that the worth is below the amount taken during the hire period. Rolls Royce operated a huge C2W scheme and the taxman got suspicious about this write-down of assets and investigated and decided that the depreciation is less than expected and that the business shouldn't value the bike at less than 50% worth after only 12 months... they took the view it should be 75% worth. What this means is that either you have to buy the bike from your employer for the remaining cost of 25%, or that you received a perk from your employer to the tune of 25% of the value. If the latter then the taxman hits you with a bill as you received a taxable perk, and if the former your company hits you with the bill. All because, a company isn't allowed to dispose of assets for less than their market worth, and what has been subject to interpretation is the market worth of a 2nd hand bike after 12 months.

You can't get tax breaks for fitness. The tax man's involvement is because your employer selling you a bike is a related party transaction, so certain rules (market value, etc) override the actual money that changes hands.

As I said earlier, if MV is less than 25% then it's fine to transfer it at that.

Employers may still 'tweak' their schemes to adapt to the new rules. The 1 year Rolls Royce scheme has just had an optional free hire period added to the end of it. This is where you sign a second agreement and continue to hire your bike for another couple of years but with no monthly cost. Then you transfer ownership after three years rather than one at a lower market value.

Thanks Velocio - and Ramaye that is an interesting point

the only other tweak i can think that may be appropriate is that the 12 monthly payments (which in my case = £1000 in total) could be reduced so that the monthly payments = 75% of the value of the package, then the 25% payable at the end makes it up to the total amount that the 'loan' was for, so the employer does not lose out, and meets the requirements for appropriately valuing the asset for the purchase of the used equipment.

Not aware of any requirement that says the monthly payments must equal the amount of the loan? Surely the employer can 'rent' the equipment out for whatever they want?

Both good ideas, as the 1 year hire period is actually just a one year payback period for the company (i.e. them recouping the expenditure on the bike). Your employer doesn't have to charge you to use the bike; they could just buy a shit load of bikes and lend them to staff.

We recently had a demo by a provider who mentioned this, they are just going to ask for a picture of the bike at the end of the scheme, if the bike looks covered in mud and like it's not been looked after they will be charging well below the hmrc guidelines.

This is the thing to remember, it's just guidelines, if you can provide good reason why the bike is worth less you shouldn't have to pay as much. (the brakes broke so it's not road legal anymore... It's been in a crash...)... Also of note:

so everyone should just get a made to measure frame and then claim it won't fit anyone else :)

Made to measure probably won't cut it (unless you're freakishly tall/short/etc) but if you've crashed a carbon frame, that's probably worthless as no one is going to buy that.

I fail to understand why bikes should follow a depreciation pattern different fro mmost everything else. Usually the more expensive, the quicker things depreciate. Here the HMRC have decided that a £1000 bike will depreciate slower than a £500 bike. It's bollocks.

However. Starting the scheme on Jan 2nd with 20% VAT will make it a little less bad.

There is not "standard" depreciation pattern for anything, perhaps you mean Capital Allowances? Totally different things.

Depreciation is item specific, so for HMRC to split bikes into two categories is totally reasonable.

Long and the short of it for me is I bought into this scheme believing I was going to get around 40% off the price of a bike. I now just think of it as an interest free loan from my company - seems to work out to about that.