Cycle To Work Scheme Problems
Discussion
Hi!
I wonder if anyone can help with this.
I bought a bike on the Cycle To Work scheme through the company I worked for. I then left the company three months later.
The bike ticket value was £600. I paid £42.50 per month for two months and I was then charged about £476 when I left.
I have just been told that the rules have been changed (even though I left nearly a year ago!) and that I now need to pay an exit fee / purchase cost of £180. They have said that if I don't pay, it will be put on my P11d as a benefit and my tax code for next year will then be changed (so I will still pay it).
I don't really understand this as that will mean I have paid over £740 for the bike which only cost £600 in the first place!
Any ideas?
cheers
Mark
I wonder if anyone can help with this.
I bought a bike on the Cycle To Work scheme through the company I worked for. I then left the company three months later.
The bike ticket value was £600. I paid £42.50 per month for two months and I was then charged about £476 when I left.
I have just been told that the rules have been changed (even though I left nearly a year ago!) and that I now need to pay an exit fee / purchase cost of £180. They have said that if I don't pay, it will be put on my P11d as a benefit and my tax code for next year will then be changed (so I will still pay it).
I don't really understand this as that will mean I have paid over £740 for the bike which only cost £600 in the first place!
Any ideas?
cheers
Mark
Actually it is probably up to your employer what happens if you leave, from a dft link on the cyclescheme.co.uk website:-
6.3 Withdrawing from a Cycle to Work Arrangement
The consequences for withdrawing from the Cycle to Work scheme will depend on the terms of the agreement for the loan of the equipment. This is a matter for the employer and employee to agree, particularly where the employee has agreed to a salary sacrifice in exchange for the loan of the cycle and or cyclists' safety equipment.
The employer should clearly communicate the terms of the agreement to employees prior to their signing a Cycle to Work agreement. Particularly if, should they leave the employment for any reason during the period in which they are sacrificing their salary for the loan of cycle and cyclists' safety equipment, the employer may require the employee to pay compensation. This compensation may be to the extent that the employer's costs have not been offset by the non-completion of the term of the salary sacrifice arrangements.
A deduction from salary or similar charge to staff in compensation for non-completion of salary sacrifice arrangements for the loan of cycles and cyclists' safety equipment is outside the scope of VAT. It is not consideration for VAT purposes and no output tax is due from the employer and the employee is also not required to pay VAT (see section 7).
6.3 Withdrawing from a Cycle to Work Arrangement
The consequences for withdrawing from the Cycle to Work scheme will depend on the terms of the agreement for the loan of the equipment. This is a matter for the employer and employee to agree, particularly where the employee has agreed to a salary sacrifice in exchange for the loan of the cycle and or cyclists' safety equipment.
The employer should clearly communicate the terms of the agreement to employees prior to their signing a Cycle to Work agreement. Particularly if, should they leave the employment for any reason during the period in which they are sacrificing their salary for the loan of cycle and cyclists' safety equipment, the employer may require the employee to pay compensation. This compensation may be to the extent that the employer's costs have not been offset by the non-completion of the term of the salary sacrifice arrangements.
A deduction from salary or similar charge to staff in compensation for non-completion of salary sacrifice arrangements for the loan of cycles and cyclists' safety equipment is outside the scope of VAT. It is not consideration for VAT purposes and no output tax is due from the employer and the employee is also not required to pay VAT (see section 7).
So when I first enquired about leaving and what effect it would have on the Cycle 2 Work Scheme (it is Halfords cycle2work scheme by the way) I received this email from the HR department:
"Unfortunately, once the hire agreement has been signed this is non-cancellable so you are now tied in to the hire agreement.
If you decide to leave before the end of the hire period you will need to pay back any outstanding payments (ie. if you leave after 6 months, the final 6 months deductions will be taken from your final salary in a lump sum) and this amount will be subject to Tax and NI so will be deducted from your NET pay.
The bike will remain ‘hired’ to you until the loan period is up. After this period if you wish to hire the bike you will need to pay the normal fee which is either £25 +VAT or 7% of the value of the Letter of Collection + VAT, whichever is greater. It is normal practice for companies to take this amount from the employee who is leaving at their leave date and hold it as a guarantee. We would then write to you after the 12 month hire agreement comes to an end to confirm whether you do want to purchase the bike and, if you do not, this fee will be returned to you on the return of the bike to the Company (I don’t think this ever really happens though given the cost an employee has already paid during the hire agreement)."
This clearly says 7%. If the government have changed it to 25% then surely that wouldn't apply to me would it?
M
"Unfortunately, once the hire agreement has been signed this is non-cancellable so you are now tied in to the hire agreement.
If you decide to leave before the end of the hire period you will need to pay back any outstanding payments (ie. if you leave after 6 months, the final 6 months deductions will be taken from your final salary in a lump sum) and this amount will be subject to Tax and NI so will be deducted from your NET pay.
The bike will remain ‘hired’ to you until the loan period is up. After this period if you wish to hire the bike you will need to pay the normal fee which is either £25 +VAT or 7% of the value of the Letter of Collection + VAT, whichever is greater. It is normal practice for companies to take this amount from the employee who is leaving at their leave date and hold it as a guarantee. We would then write to you after the 12 month hire agreement comes to an end to confirm whether you do want to purchase the bike and, if you do not, this fee will be returned to you on the return of the bike to the Company (I don’t think this ever really happens though given the cost an employee has already paid during the hire agreement)."
This clearly says 7%. If the government have changed it to 25% then surely that wouldn't apply to me would it?
M
Well they sent me this link: http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a....
However, the scheme FAQ (http://cycle2work.force.com/siteemployeefaqs) says this:
"What if an Employee leaves early or is made redundant?
If you leave before the end of the hire period, you must pay your employer the balance of the amount still to pay and this will deducted from your final net pay. You may then have continued use of the equipment without further payment until the hire period expires, when you may be offered the opportunity to purchase the equipment for its then fair market value. However this transfer of ownership is the subject of a separate agreement and is not governed or influenced by the Hire Agreement you sign for this scheme"
and
"What happens at the end of the scheme?
After the agreement period is over, your organisation may offer to sell the equipment to you for its fair market value at that time (inc VAT). ie: the amount that a buyer would pay to a seller to purchase the bike taking account its second hand value and current condition"
It doesn't say anything about Government guidelines etc.
M
However, the scheme FAQ (http://cycle2work.force.com/siteemployeefaqs) says this:
"What if an Employee leaves early or is made redundant?
If you leave before the end of the hire period, you must pay your employer the balance of the amount still to pay and this will deducted from your final net pay. You may then have continued use of the equipment without further payment until the hire period expires, when you may be offered the opportunity to purchase the equipment for its then fair market value. However this transfer of ownership is the subject of a separate agreement and is not governed or influenced by the Hire Agreement you sign for this scheme"
and
"What happens at the end of the scheme?
After the agreement period is over, your organisation may offer to sell the equipment to you for its fair market value at that time (inc VAT). ie: the amount that a buyer would pay to a seller to purchase the bike taking account its second hand value and current condition"
It doesn't say anything about Government guidelines etc.
M
My employer was talking about a cycle to work scheme this morning so I did some sniffing around. This is what I got from cyclescheme
At the end of 12 months you get three options:
1) hand the bike back
2) buy it at market value. HMRC accepts 25% of purchase price as market value on a 12 month old bike that cost over £500
3) pay a 7% of the original cost as a deposit for a further 36 months hire (no ongoing hire charges), at the end of which you "may" get the option to keep the bike (they keep the deposit) or hand it back, in which case the deposit is returned.
I think the different options are where you are getting the different percentages from. However, this isn't the Halfords scheme so they might be different.
The 25% figure I found on this page:
http://www.cyclescheme.co.uk/employers/employer-up...
It's somewhat confusing what happens at the end of 12 months, apparently the bike belongs to the employer, but if you want the extended hire the deposit is paid to cyclescheme. Erm? I assume I have misunderstood this somewhere.
At the end of 12 months you get three options:
1) hand the bike back
2) buy it at market value. HMRC accepts 25% of purchase price as market value on a 12 month old bike that cost over £500
3) pay a 7% of the original cost as a deposit for a further 36 months hire (no ongoing hire charges), at the end of which you "may" get the option to keep the bike (they keep the deposit) or hand it back, in which case the deposit is returned.
I think the different options are where you are getting the different percentages from. However, this isn't the Halfords scheme so they might be different.
The 25% figure I found on this page:
http://www.cyclescheme.co.uk/employers/employer-up...
It's somewhat confusing what happens at the end of 12 months, apparently the bike belongs to the employer, but if you want the extended hire the deposit is paid to cyclescheme. Erm? I assume I have misunderstood this somewhere.
Magic919 said:
My employer transfers the bike to Cycle scheme at the end of the 12 months if we don't buy it at that point. I think the scheme is best avoided, personally.
That is your employer being mean minded.. with cyclescheme.co.uk the bike is signed over to them after a year, basically a higher rate taxpayer gets a £1000 bike for £560 so not to be avoided at all... all t&cs & pricings in their websiteJimboka said:
Magic919 said:
My employer transfers the bike to Cycle scheme at the end of the 12 months if we don't buy it at that point. I think the scheme is best avoided, personally.
That is your employer being mean minded.. with cyclescheme.co.uk the bike is signed over to them after a year, basically a higher rate taxpayer gets a £1000 bike for £560 so not to be avoided at all... all t&cs & pricings in their websiteGassing Station | Pedal Powered | Top of Page | What's New | My Stuff