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Cyclescheme Response to HMRC Advice (December 2009)

Sale of cycles after the end of hire period

HMRC has clarified their stance on the sale of cycles (or Transfer of Ownership) to employees after the end of a hire period by stating the following:

‘…  An employer or a third party cycle provider may choose to offer the cycle for sale to the employee after the loan has ended.  If the employee is able to buy the cycle for less than its market value, the difference will be liable to tax and to employer’s Class 1A NIC liability’;

and

‘each cycle that is sold in this way should be valued at the time of sale’;

It is worth pointing out that the sale of cycles after the end of the hire period will have no bearing on the original tax exemption under the salary sacrifice arrangement; any subsequent liability for the perceived shortfall in the amount charged for the sale will be limited to the employee’s tax and employer’s NI.

To avoid any such liability, Cyclescheme recommends employers to nominate at any point during their scheme to transfer ownership of all Bicycles to Cyclescheme, and take advantage of our free-of-charge Transfer of Ownership service.

Alternatively, employers who choose to administer the sale of cycles themselves will need to seek expert advice to value Bicycles after the end of each individual hire period, or direct employees to do so independently, and charge an appropriate Fair Market Value.

Cyclescheme pays the employer a one-off nominal fee to transfer the ownership of all bikes, and subsequently handles all aspects of the administration of the sale of cycles to the employees.  There is no cost to the employer, but Cyclescheme retains Fair Market Values paid by the employees.

After the end of each hire period Cyclescheme will contact the employee to assess the condition of the Bicycle and issue a Secondary Agreement for the appropriate value.  Cyclescheme utilises the extensive knowledge and experience of its Partner Bike Shops, currently numbering over 1500 outlets across the UK, when evaluating the condition of bikes.

Needless to say, it is not possible to predict the market value of a bike prior to the end of the hire period, but in our experience the bike’s value is typically a fraction of the original retail price due to the frequency of usage encountered when commuting to work throughout the year and any additional leisure usage.

Employees can pay to take ownership of bikes with ease using our on-line payment portal, and Cyclescheme issues a full receipt to the employee.  All stages of the transaction and the value of sale are stored securely on our Extranet system, accessible to employer administrators at all times.

If you require any further information regarding the points covered in this communication please contact our Help Desk on info@cyclescheme.co.uk for further assistance.

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