Muddymoles: Mountain biking (MTB) in the Surrey Hills and Mole ValleyMuddymoles: Mountain biking (MTB) in the Surrey Hills and Mole Valley

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Negative changes to Cycle2Work scheme

Posted by Matt | August 23, 2010 | 6 comments so far

If there’s one tax incentive that has paid dividends to government (in achieving it’s health promotion and green aims), industry (valuable support for small businesses) and individuals (improved fitness and cheaper commuting) then it has to be the Cycle2Work scheme in the UK.

Since it’s inception as a result of the 1999 Finance Act, the Cycle2Work scheme has gradually come to be seen as a great employee benefit and an important part of ‘promoting healthier journeys to work and reducing environmental pollution‘.

Sadly this might not be the case for much longer.

The problem, as is so often the case, comes down to money. Or rather, the lack of it in these straitened financial times. The government is looking for ways to claw back money and passing up on the chance of additional revenue doesn’t seem an option.

This has affected the Cycle2Work scheme by the Inland Revenue issuing guidance on how the scheme is to be administered. The fundamentals remain the same – the employer buys the bike VAT-free and leases the bike to an employee over the course of a year.

The employee pays this cost using untaxed income and at the end of the year pays a final payment which relates to what the bike is nominally worth (called ‘fair market value’), then walks away with the bike. Over the course of a year the employee could save anywhere between 30%-50% or so of the bike’s original value depending on their individual tax status which made it a very popular scheme.

Unfortunately, this looks like being seriously curtailed by the Revenue issuing guidance as to what the fair market value of a year old bike is. They reckon on 25% which is far higher than the 5% or so that many employers charged. In effect it means the savings are significantly less and in some cases nothing at all.

Now employers don’t have to follow this guidance. They can still sell the bike to their employees at a lower cost but in that case the individual becomes liable for tax as a benefit-in-kind. Depending on circumstance the individual could be just as well off taking their cash and looking for a discount on any number of new bikes out there.

So not only do individuals stand to lose out but bike shops do too. As small businesses the Cycle2Work scheme has been great as they’ve not had to give as much of their profits away in the form of discounts since the savings to individuals were already huge. So this change could mark a fundamental shift in bike retailing.

As some of you know I build websites for large corporations to enable their employees to pick and choose their benefits and Cycle2Work has been a very popular choice for many for some time. However, anecdotally, within a couple of days of the Inland Revenue’s guidance one of our clients (a FTSE100 company) currently selecting options for next year has has ditched their Cycle2Work offering. It makes no difference to me what options they offer, but it does suggest that Cycle2Work is under a lot of pressure.

It’s funny how sometimes real life affects our enjoyment of mountain biking isn’t it? And this time it’s not our spouses complaining or a lack of time!! Perhaps we could expect to see a more cut-throat approach to retail pricing as a result? Is that a good thing if that means some of our local bike shops fall by the wayside?

The truth, as has been said before, is out there…

Filed under 2010, News in August 2010

Matt

About the author

Matt is one of the founding Molefathers of the Muddymoles, and is the designer and main administrator of the website.

Having ridden a 2007 Orange Five for many years he's now running a YT Industries Jeffsy 29er and a Bird AM Zero Boost.

An early On-One Inbred still lurks in the back of the stable as a reminder of how things have moved on. You can even find him on road bikes - currently a 2019 Cannondale Topstone 105 SE, a much-used 2011 Specialized Secteur and very niche belt drive Trek District 1.

If you've ever wondered how we got into mountain biking and how the MuddyMoles started, well wonder no more.

There are 6 comments on ‘Negative changes to Cycle2Work scheme’

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  1. OrangeRoo says:

    Interesting Matt. I’ve just finished paying for my new bike this week and paid the usual 5% or thereabouts as I was expecting. As you say, if the valuation were higher the benefits significantly decrease making either a purchase less likely or as you say more pressure on the retailers to reduce prices. Either way you would have thought tax income will reduce.

    Interestingly, my employer has not yet picked up this change – time will tell.

  2. Keith Reeves says:

    I agree that it’s a well intentioned scheme, however, it’s widely open to abuse. I wonder how many comfortably off middle class professionals have taken advantage of the scheme to buy a nearly £1000 bike for roughly half price – which they then haven’t commuted on? There isn’t even a requirement to prove that you use it to cycle to work on! It’s yet another small example of how government (national and local) loves to hose taxpayers money, without a second thought of where it comes from in the first place.

  3. Matt says:

    Hi Keith, I agree that you could say the scheme is open to abuse. Certainly, buying a bike for half price and not using it is frustrating, but if you don’t have a bike in the first place you’re definitely not going to use it are you?

    Whether that’s for commuting or recreational purposes is not the point in my view. If it gets used and helps people get/stay fit then that’s a big win long term.

    The increased popularity of cycling, particularly for commuting with the hipster/fixie/fashion crowd or whatever you call it certainly suggests that Cycle2Work has had a positive influence.

    Lastly, the point about supporting the bike industry is important. We need a solid bike infrastructure if there’s any chance of changing people’s attitudes to cycling and the Cycle2Work scheme has played a big part in supporting the industry over the years. I’d argue the industry needs to sharpen it’s act too but that’s another issue.

    I think this is a rather short-sighted step and smacks of one govt. department looking for immediate savings rather than the bigger picture – something we’re very much at risk of across the board.

  4. Chris says:

    Must the business dispose of the bike at all? As long as I have use of the bike until perhaps I ride it into the ground (mkt value approaching £nil), it doesn’t really matter (to me) who owns it. – I have a good relationship with my employer and have had 2 bikes on this scheme, each for 3 years. That said, the valuation table provided by HMRC seems fair and encourages longer-term use of bikes – better to maintain/repair than to replace?

  5. Colin says:

    Fear not, its not as bad as you think.

    There is no stipulation that you have to buy the bike at the end of the payment period. So for example, when you reach this point, your employer could charge you a peppercorn rent (£1 a month) for you to remain using it, until the value is deemed low enough to make it more economic to buy.

    The agreed value table as per http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm can be challenged and need not necessarily be followed, provided justified.

    So for example, if you want to purchase the bike at a value less than the guidlelines, take photographic evidence of the bike, made to look in less than perfect nick(you get the jist).

    Of course, you can’t expect big employers to condone such behaviour but there is a loophole that will be exploited by those owner-managed (cycling owner manager) business who can ‘tailor’ the scheme to suit!

    It remains a fantastic scheme to dramatically reduce the cost of new bikes, particularly for high rate tax payers.

    It is also a common myth that you need to use a voucher scheme or recognised supplier. There is no reason why your business can’t deal direct with your preferred LBS supplier.

    So, all you owner managers and those with smaller employers who are open to being flexible/creative, you must take advantage of this yet. Get creative and recoup some of the massive costs we folks are suffering in the age of austerity.

    Colin

    Middle class, no-longer-well-off, but still opportunistic

  6. Matt says:

    Here’s some really great news – the Government’s review has recommended keeping the tax relief on Cycle2Work schemes – so that 25% fair bike value has just been toe-dropped, thank goodness.

    From the Office of Tax Simplification, Review of tax reliefs, March 2011, Annex B.32:

    We recommend that this relief be retained. In view of the advent of the bike hire scheme introduced recently in London, it would be logical to extend the relief to cover support given by employers to employees who use those cycles.

    So that’s another cheap bike I’ve got lined up for later this year then 🙂

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