on yer bike
During the past five years, tens of thousands of us have taken advantage of the ‘cycle to work’ scheme designed to encourage green and healthy commuting by offering generous tax breaks to allow employees in buying a half-decent bicycle. In essence, the scheme allows individuals to buy a bike before income tax and national insurance is deducted, and once the employer’s VAT savings are factored in, it all adds up to a great little scheme which results in a new bicycle costing about half of its RRP. Simples.
It works, it makes sense and everyone’s happy. Dream on. In a case of ‘if it ain’t broke don’t fix it’ the HMRC decided to throw a spanner in the wheel (sic) and attempt to change the rules concerning the final ‘payment’ for the bike made by the employee to the employer whereby the bike becomes their own property. In reality, the employer has bought the bike, then loaned it to the employee and at the end of the loan period the worker buys the bike for a payment supposedly representing the bike’s ‘fair’ value.
Since the scheme’s inception the industry has adopted a 5% guideline whereby we pay this figure to ‘buy’ the bike from the employer. This was until Her Majesty’s finest decided to throw the scheme into disarray by attempting to clarify the amount defined as the bike’s ‘fair’ value arguing that a one-year old bike is worth more than the accounted 5%. It produced a table of sliding value that decreed a £500+ bike would be worth 25% of its original purchase price after a year and together with an accompanying change in the taxation levels the employee would end up paying a total of £418 for their bike – no longer THAT great an incentive for getting on your bike.
Worth more than 5%? Of course it is! Trawl through next week’s Cycling Weekly classifieds and any number of 2009 Specialized Allez will be being offered to you for £350 ONO, approximately 60% of its original price. And they’ll all be gone by the time your call’s answered! But all this talk of 5, 18 or 25% is surely missing the point? We should be walking more, we should be running more and we should be cycling more. End of. We’re continually told this with vital statistics concerning better health, lower smoking and drinking casualties, a greater energy level and increased positive outlook, to back it up. Why any Government would want to upset this apple-cart for the sake of a couple of per cent or the additional corporation tax paying on £418 (minus the previous 5% amount of course) is beyond me. Oh, because they’re short-sighted fiddlers and tinkerers who are not truly committed to the betterment of society as it all keeps us in our places and keep the tax coming in from the fag and booze pedlars.
The new framework came into force in August. That’s the bad news. The good news is that no-one gives a flying fig about it and in yet another case of the bureaucrats bringing useless, easily ignored red tape, there’s a work around and tax-fiddle already built in. Mind, it is a lot more complicated and needs the full buy-in and understanding of the organisation. Employers are now able to offer those bike-riding-health-conscious-non-smoking-lower-NHS-using employees the chance to extend the user agreement at the end of the first year. The employer in effect takes over the ownership and lends it to the employee for a further 31 months free of charge although the user will be asked for a nominal continuation deposit equating to the value of a four year bike. Any ideas on what this amount approximates to? Yep, about 5%. Doh.
In the meantime, the ruling will leave many Cycle to Work beneficiaries who bought ‘their’ bikes through the old scheme wondering whether they face a retrospective tax bill landing on their welcome mat sometime soon. In theory, the answer is yes. But I wouldn’t lose sleep over it as, given the impending financial constraints on HMRC, it seems highly unlikely that its staff will have far more on their plate than hunting down people who got their bikes on the cheap. And if they do show up, why, get on your bike and pedal off into the distance leaving them puffing and panting in your wake. Happy cycling.
