HMRC Market Value Clarification

Cyclescheme, 05.05.2011

HMRC Market Value Clarification

The purpose of this article is to explain how, following HMRC announcements in October 2010 Cyclescheme remains an attractive benefit for employers and employees. Cyclescheme’s ownership process, based on HMRC guidance, ensures that employees' savings are protected. 


What's it all about?

  • Our ownership process ensures participants will save at least 25% on their Cyclescheme package. 
     
  • The process means that they take ownership of their package later at a lower value.
     
  • A small, refundable deposit secures continued use of their package.
     
  • They can participate again as soon as your initial Hire Period is up (usually 12 months).

Cyclescheme's Recommended Option.

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


Cyclescheme ownership process FAQs.

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

1. How is the market value for a Cyclescheme package determined?

HMRC has published the following ‘Valuation Table’ to be used to calculate the market value of bicycles and accessories at the end of the Hire Period:

 

2. Will the employee be offered ownership of the Cyclescheme package?

In order to preserve the tax benefits of the scheme, there can be no guarantee or obligation to offer ownership to the employee immediately after the Hire Period has ended. However, employers invariably 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 accessories value*) and continue to use the Cyclescheme package 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 package.  No further action or payment is required if they wish to keep the package.

* the lower figure is for packages of less than £500 and the higher is for packages 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 period.

 

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

Yes, the employee is free to participate in future Cycle to Work schemes with their employer. The extended option 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 = package 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 package 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?

No. The Govenment has recently rubber stamped the cycle to work scheme.

 

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 ownership options at the point we are informed.

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

 

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