tax free bikes again

[Ian Smith]

Encouraging cycling to work.

I am examining the tax exemption rules, and have some specific
questions. Has anyone got the answers to these (preferably with
supporting official evidence - a tax manual reference or something).


Any guidance over duration for which the scheme should run? I can't
find anything. Duration no more than 18 months has benefits because
it avoids some statutory credit restrictions (like the right for the
employee to terminate the arrangement).

Fair market value? Any official catch-all rules? I've seen some of
the scheme providers claiming 5% is fair, but no official guidance
beyond normal tax rules about 'fair'. I have doubts that 5% of new
price is fair for an 18 month old bike.

So far as I can see, it's valid to operate the scheme with an 18-month
salary sacrifice, but then the bike remains the property of the
company, and ownership is NOT immediately transfered. In this way,
there is no need for payment from employee and no tax obligation. At
some future time, when the employee leaves employment (or stops using
the bike for journeys to work), the market value at that time is
assessed, and will hopefully be very low. Does anyone have a scheme
that works like this?

Has anyone done this and actually taken out a consumer credit licence,
in order to provide bikes over 1000 gbp? How easy is that?

regards, Ian SMith

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[Tony Raven]

Ian Smith wrote:

http://www.dft.gov.uk/stellent/groups/dft_susttravel/documents/page/dft_susttravel_038228.hcsp
gives lots of guidance with lots of good links on things like Consumer
Credit Licenses and Market Value

>
> Any guidance over duration for which the scheme should run? I can't
> find anything. Duration no more than 18 months has benefits because
> it avoids some statutory credit restrictions (like the right for the
> employee to terminate the arrangement).

A lot run over 12 months so there is no effect on the company accounts -
money spent = money recovered

>
> Fair market value? Any official catch-all rules? I've seen some of
> the scheme providers claiming 5% is fair, but no official guidance
> beyond normal tax rules about 'fair'. I have doubts that 5% of new
> price is fair for an 18 month old bike.

From HMRC

If an employer gives or sells an asset at undervalue to an employee, a
tax charge arises on the extent of the undervalue. Where the asset has
been used or depreciated, the charge is generally by reference to market
value.

There is an alternative basis of valuation where ownership of an asset
is transferred to an employee after being used as an employee benefit.
The taxable value on transfer is the higher of (a) market value at date
of transfer or (b) the value of the asset when first used as a benefit,
less the total cost of the benefit during the loan period. In the case
of computers and bicycles, which are exempt from a taxable benefit
during the period of the loan, the amount that would have been taxable
each year is taken into account.

In order to remove any uncertainty the position is being simplified so
that no tax charge will arise if the employee pays the full market value
at the time of transfer.

IANAA but option b) seems to imply if you have paid the full value out
of untaxed income, then the residual value on which tax is charged is
zero. But I would ask an accountant.
>
> So far as I can see, it's valid to operate the scheme with an 18-month
> salary sacrifice, but then the bike remains the property of the
> company, and ownership is NOT immediately transfered. In this way,
> there is no need for payment from employee and no tax obligation. At
> some future time, when the employee leaves employment (or stops using
> the bike for journeys to work), the market value at that time is
> assessed, and will hopefully be very low. Does anyone have a scheme
> that works like this?

Not here but HMRC suggest that as an option in their guidance


--
Tony

"Anyone who conducts an argument by appealing to authority is not using
his intelligence; he is just using his memory."
- Leonardo da Vinci

 

[Ian Smith]

On Mon, 29 May 2006 15:08:28 +0100, Tony Raven <[email protected]> wrote:
> Ian Smith wrote:
> >
> > Any guidance over duration for which the scheme should run? I can't
> > find anything. Duration no more than 18 months has benefits because
> > it avoids some statutory credit restrictions (like the right for the
> > employee to terminate the arrangement).
>
> A lot run over 12 months so there is no effect on the company accounts -
> money spent = money recovered

That's useful, thanks.

> > Fair market value? Any official catch-all rules? I've seen some of

> There is an alternative basis of valuation where ownership of an asset
> is transferred to an employee after being used as an employee benefit.
> The taxable value on transfer is the higher of (a) market value at date
> of transfer or (b) the value of the asset when first used as a benefit,
> less the total cost of the benefit during the loan period. In the case
> of computers and bicycles, which are exempt from a taxable benefit
> during the period of the loan, the amount that would have been taxable
> each year is taken into account.
>
> In order to remove any uncertainty the position is being simplified so
> that no tax charge will arise if the employee pays the full market value
> at the time of transfer.

s/is being simplified/has been simplified/ I believe.

Your first paragraph is now superseded (it's not uncommon to find
superseded stuff on hmrc website - sometimes it even tells you it's
superseded at teh top of teh page).

regards, Ian SMith
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[david lloyd]

I can't get my employers to put the bike racks in a usable position, or
provide wash/change or kit storage, whic I would need as I ride 25 miles
each way. What is the likelyhood of them helping out with a new bike?

--
Dave Lloyd
So open minded, my brains dribbled out.