Cycle-to-Work schemes – Valuing cycles transferred to employees after a period of loanThursday, August 12th, 2010
Many employers operate Cycle-to-Work schemes under which employees are loaned cycles and cyclists’ safety equipment and, to take advantage of the applicable tax exemption, payments are made by employees using a salary sacrifice arrangement.
At the end of the loan period, no tax charge arises if the cycle and related equipment are sold to the employee at a figure that is not less then their market value. Otherwise the difference between the amount paid by the employee and the market value is a taxable benefit. Employers running these schemes find it difficult to obtain reasonable market values for the used cycles and equipment.
HMRC has updated the technical guidance on this subject provided for its own officers in the Employment Income Manual. The additional material explains HMRC’s new simplified method of helping employers determine an acceptable market value using the Valuation Table shown below. An insight into how the Valuation Table was devised may be gained from the minutes of the meeting of HMRC’s Benefits and Expenses sub-group meeting on 2 June 2010.
HMRC will accept the valuation obtained from the Table as the market value of a particular cycle if it is used to
- ensure that the employee pays at least the valuation figure, or
- to calculate the reportable benefit if the employee pays a lower figure.
However, a number of conditions apply to this procedure:
- The cycle in question must have qualified for the exemption during the period of loan. In particular, the main use of the cycle must have been for travel between home and a workplace, or between two workplaces. The procedure is not, therefore, limited to cycles provided under salary sacrifice schemes. They may be used for any cycles that have qualified for the tax exemption.
- The make or model of the cycle is not important, even if some cycles hold their value better than others. The cycle must be one that is widely available commercially. The valuations may not be used for cycles with special value because of some special and unusual features or provenance. This would exclude, therefore, antique or collectable cycles, expensive specialist cycles that have been custom-built, or cycles with an enhanced value because they were previously ridden by a celebrity or race winner.
- If employers choose to use lower values than those derived from the Table, which they are entitled to do, HMRC would be likely to challenge the figure and requiring the employer to demonstrate that it would not have been possible to realise the Table figure, perhaps due to the cycle’s condition. Evidence for a lower figure would include:
- a photograph of the cycle that shows its condition, and a written description of any aspects of its condition that are not evident in the photograph,
- broad details of the extent of usage of the cycle, for example its overall mileage if it was used for long qualifying journeys, and
- factual evidence of the figure that could have been realised at the time for a cycle in that sort of condition in a private sale and in a sale to a cycle retailer.
|Valuation Table – Acceptable disposal value percentage|
|Age of cycle||Original price of the cycle|
|Less than £500||£500 or more|
|6 years and over||Negligible||Negligible|
Using the Valuation Table: The starting point is the original price of the cycle. This is the price for which it was on sale as new when it was first provided to the employee. The price may be found in the supplier documentation covering cycles obtained for a Cycle-to-Work salary sacrifice scheme. Otherwise it is the amount that the employer paid or was invoiced, or the retail price that was taken into account when working out any hire payments.
Only safety equipment fitted to the cycle (e.g. lights, bell) should be included when calculating the original price of the cycle. Safety equipment worn by the cyclist (e.g. helmet, reflective clothing) for regular commuting journeys should not be included as is likely to have a residual value that is less than the Valuation Table percentages.
In determining whether the original price was less or more than £500, the VAT-exclusive may be used. However, VAT must be added to arrive at an acceptable market value, whether or not the employer is VAT-registered.
Example: For a cycle with a VAT-exclusive cost of £400, the market value after 2 years is £61, sum of
- £52 (13% of £400) and
- £9 VAT (i.e. 17½% (currently) of £52).
This method of calculating the VAT-inclusive value applies for employment income purposes and does not reflect in any way the handling of VAT for accounting purposes.