HMRC Market Value Clarification

HMRC Market Value Clarification

The purpose of this article is to explain how, following recent announcements, our Cycle to Work Scheme remains an attractive benefit for all those involved. Cyclescheme’s market value process, based on HMRC guidance, ensures that employee’s savings are protected. 


 

Get a bike, protect your savings, get fit.

  • Hang on to the bike and you could end up paying even less than before.
     
  • There’s no downside to transferring ownership after a longer period.
     
  • A small, refundable deposit secures continued use of the bike, regardless of employment status.
     
  • You can get another bike as soon as your initial hire period is up (usually 12 months).
     
  • The market value percentage charge includes VAT – the misconception is that you pay this on top.
     

Cyclescheme's Recommended Option

To view and download the complete flowchart, please click here.

 


Cyclescheme Market Value Process FAQs

To view the below FAQs in PDF format, please click here.
 

1. How is the market value for a bike obtained through a Cycle to Work Scheme determined?

HMRC has published the following ‘Valuation Table’ to be used to calculate the market value of bicycles and safety equipment at the end of the hire period:

 

2. Will the employee be offered ownership at the end of the hire period?

In order to preserve the tax benefits of the scheme, there can be no guarantee or obligation to transfer ownership to the employee immediately after the hire period has ended.  However, employers generally choose to offer this option, either directly or via Cyclescheme.

 

3. How can employees still make a saving?

At the end of the hire period, Cyclescheme will contact employees to discuss the options available.

The most attractive option for employees will be to pay a small, refundable deposit (3% or 7% of the equipment value*) and continue to use the bicycle for an extended period of up to 36 months.

At the end of this period, Cyclescheme will refund the deposit if the employee does not wish to keep the bicycle.  No further action or payment is required if they wish to keep the bicycle.

* the lower figure is for an equipment value of less than £500 and the higher one for equipment value of £500 or more. These figures include VAT.

 

4. If the employee extends the use period what are the monthly payments?

The monthly payments are zero.  There are no further salary sacrifice payments or hire charges due during the extended use period.

 

5. Will employees have to pay more when the extended use period ends?

No.  Employees will have the option to return the bicycle and receive a refund of their deposit. If offered ownership by Cyclescheme at this point, no further action or payment is required if they wish to keep the bicycle.

 

6. Can an employee participate in a new scheme during the extended use period?

Yes, the employee is free to participate in future Cycle to Work schemes with their employer.  The Extended Use Agreement is not a salary sacrifice arrangement and, apart from the refundable deposit, no further payments are required from the employee.

 

 

7. How does Cyclescheme calculate the market value payment?

Cyclescheme has chosen the best option for the employee.  The market value is calculated as below:

Figure to which market value is applied = Equipment value minus Helmet value minus VAT.  The appropriate Valuation Table percentage is then applied to this amount, and VAT is added back on.

Here’s an example based on an equipment value of £550 including a £30 Helmet and VAT:

Figure to which market value is applied = £550 minus £30 Helmet = £520.00 minus VAT = £433.34

£433.34 is less than £500, therefore;

12 month valuation percentage = 18%

4 year valuation percentage = 3%

4 year valuation = 433.34 * 3% = £13.00 + VAT = £15.60 

 

8. Will HMRC update this guidance again?

We do not believe that HMRC will update their guidance on ‘acceptable disposal percentages’.

 

9. If the employment status of a scheme participant changes, what happens?

During the initial hire period, if Cyclescheme are notified of a change of employment status, we will contact the employee with their end of hire options at the point we are informed.

During the extended use period, the employer has no responsibility to contact Cyclescheme, as the agreement is between Cyclescheme and the employee.  If the employee changes jobs the agreement is still valid.