HMRC's recent 'market value' rule change caught Cycle to Work companies on the hop. One of them now offers a solution, negotiated directly with Customs & Revenue
In August, a HMRC stick seemed to have been thrown in the wheel of the Government's Cycle to Work salary sacrifice scheme: end of term bike valuations had to be higher than previously advised.
However, a solution is now being offered by Cyclescheme, the largest of the third party facilitators which do the Cycle to Work legwork for employers.
Cyclescheme director Richard Grigsby said this workaround is a "fully compliant Market Value solution for HMRC’s latest advice on valuing cycles at the end of a loan period."
The Cyclescheme solution [PDF] has been arrived at following discussions with HMRC and independent tax experts. In effect, it alleviates the administrative burden for collection of 'market values' on bicycles at the end of the loan period from employers. It also means employees can avoid P11D charges by opting for an extended hire period with Cyclescheme.
At the end of the initial 12 month hire period with the employer, participants on Cyclescheme programme may be given the option to take ownership of the bicycle or extend the hire period with Cyclescheme. The appropriate Market Value will be calculated using HMRC’s Valuation Table at this time. Employees who choose to sign a hire agreement with Cyclescheme may be given the option to take ownership of the bicycle at the end of the extended hire period.
Employees have continued use of the bicycle for a period of up to four years without transferring ownership. Extending the 'hire period' reduces the value of the bicycle in line with the four year valuations in HMRC’s table of 3 percent and 7 percent including VAT.
Employees can participate in the scheme again once their initial hire period has ended, even if they extend the hire period with Cyclescheme. Most initial hire periods are 12 or 18 months long.
Employers recover 100 percent of the initial purchase cost of the equipment in the first 12 months and avoid P11D charges to their employees by transferring the asset to Cyclescheme at the end of the initial 12 month hire period.
Grigsby said: “Cyclescheme remains committed to supporting the Cycle to Work initiative through local, independent bike dealers and the community they are a part of. We are obviously excited about the implementation of this new process and by maintaining the scheme’s attractiveness to employees we are confident that the scheme will continue to grow. Our new process enhances what is an excellent employee benefit; a benefit that will continue to drive business to our partner cycle stores, and engage employees with three of the Government’s key initiatives, namely CO2 emission reductions, congestion reduction and healthy living.”
"Initial response from our client base has been extremely positive, with many of our existing clients collecting their own market values, handing the end of hire administration over to Cyclescheme.
"One of our longstanding clients has described the process as ‘a very neat, workable and compliant solution for both existing contracts and future entrants to the scheme.’"