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Following the summer rule change to the Cycle to Work Scheme, Evans Cycles has called the modification a ‘great thing’ for the cycle industry.
Many in the industry had feared that HMRC’s revision of ‘fair market value’ guidance for the worth of bicycles bought on the scheme would make Cycle to Work less attractive to employers and employees. But not so, according to Evans.
“The new guidelines are actually a great thing for the cycle industry whereby employers become compliant with the HRMC and employees can enjoy the same, if not greater savings,” enthused Evans Cycles Ride 2 Work corporate business manager Mark Brown.
Evans has gone on to provide a lengthy Q&A on the subject, designed to tackle fears over the scheme.
It reads:
"Why were new guidelines announced in August?
Since the launch of the scheme there has been some confusion surrounding how much to charge for a bike when ownership is transferred from the employer to the employee, at the end of the loan period. There were never firm guidelines on what the value of this ownership payment should be, meaning what people paid to become the final owner of the bike varied dramatically.
As a form of employee benefit, and because the bike is owned by the employer, HMRC view the transfer of ownership as a transaction which has a taxable value and were keen to ensure it is fully compliant with current legislation.
Evans Cycles view these changes as a good thing because they help companies administer the scheme and therefore are more likely to offer it to their staff. The new valuation table can be seen here.
How will the scheme change as a result?
At face value some people may think these changes make the scheme less attractive by removing some of the savings for employees. Actually the opposite is true.
An important point about the scheme is that the period of salary sacrifice, that’s the monthly payments bit, does not have to be the same length as the agreement to hire the bike.
This means that the bike loan payments can still be undertaken over 12 months, but hire and use of the bike can continue for a much longer period of time without any extra charge. At the end of this period the offer to transfer ownership of the bike to the employee can be made.
HMRC valuation guidance covers 12 to 72 months, at which point a bike has no value and ownership can be transferred for zero cost.
What are Evans Cycles recommending to Ride2Work customers?
Evans Cycles’ advice is to offer a flexible hire agreement with a maximum term of 72 months. The salary sacrifice payments are taken in year one but use of the bike continues for free until such time as ownership is transferred, if an employee leaves the company, or at 72 months when the bike has no value and ownership has no cost.
Don’t be put off by talk of 72 months because this basically sets the framework for the Ride2Work hire agreement. The scheme is really flexible so ownership can be transferred at any time if either party requests it.
This is a great solution ensuring employers offer a compliant scheme which is easier to administer and employees can still take advantage of fantastic savings. In fact the savings can actually be greater because the longer the hire term the cheaper the bike becomes, ultimately having no cost.
Here are some examples of savings under the revised scheme
Employee earning £20,000 spending £700 with a 72 month hire agreement:
Monthly cost to hire = £34.26
Ownership transfer cost = £0
Total cost = £411.06
Savings = 41%
Employee earning £45,000 spending £700 with a 72 month hire agreement:
Monthly cost to hire = £29.29
Ownership transfer cost = £0
Total cost = £351.49
Savings = 50%
Are there other options apart from extending the hire period?
There are other ways that employers can structure the valuation and transfer of ownership however in our view they create more paperwork and reduce the savings.
The first option involves self valuation, whereby employees have to do a fair amount of work to prove how much their bike is worth. The second option is to submit something called a P11d which is a way of paying tax on the value of the bike, which involves completing a self assessment tax form. "
Evans has published more info here.
