Employee Benefits magazine has an article on the subject of how HMRC view valuations of bikes at the end of loan agreements. It says that they accept a figure of 25% of the purchase price after a year which is higher than the figures that have been talked about by cycle scheme providers. However, Cyclescheme has their own bike purchase deal which values them at a lower figure and so may be a good solution for organisations wanting to avoid any issues with this.
In terms of guidance for our clients, we should ask the scheme providers to provide guidance (as we do not provide tax advice) and send it to them. RS and JW will review and post more information in due course.
To see the article - http://www.employeebenefits.co.uk/item/11223
Key paragraphs:
A statement from HMRC said: “The cycle-to-work scheme is a very generous tax break and remains so. After consultation with employer representatives we have provided a guide to what constitutes an acceptable price for a bike being sold to an employee to provide a simplified method for establishing the market value of the bike. There has been no chance to the rules, if an employer passes a bike to a employee after its use under the cycle-to-work scheme at its full market, value there is no tax charge.
“The 25% value for a one-year-old bike which cost £500 plus when new is the guide price for the simplified scheme and if employees pay this amount HMRC will accept no benefit arises. Employers can sell the bike to employees at whatever price they like, but if it is lower than 25% at one-year-old then they would need to explain why the value was lower.”
The new estimation applies to schemes already in place, as well as any future cycles purchased through a scheme.
Idea
One idea is to change hire costs -
The employer hires the bike out at 75% of the cost (less VAT etc) over the 12 month period. At the end of the period the employer can dispose of the bike at fair market value (25%).
In the example above a £500 bike is hired to the employee at a rate of:
£500/1.175*0.75/12 = £26.60 per month.
At the end of the period the employee may pay £125 to purchase the bike. So the cost to the employee before tax and NI saving is £444.20. The cost to the employer is £425.53 after VAT.