The purpose of this article is to explain how, following recent announcements; Bike to Work’s Scheme remains an attractive benefit for all those involved. Bike to Work Ltd’s market value process, based on HMRC guidance, ensures that employee’s savings are protected.
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Bike to Work’s Market Value Process FAQs
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:
Age of cycle Acceptable dispossal value percentage Original Price less than £500 Original Price £500+ 12 Months 18% 25% 18 Months 16% 21% 2 Years 13% 17% 3 Years 8% 12% 4 Years 3% 7%
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 Bike to Work Ltd.
How can employees still make a saving?
At the end of the hire period, Bike to Work Ltd 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, Bike to Work Ltd 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.
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.
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 Bike to Work Ltd at this point, no further action or payment is required if they wish to keep the bicycle.
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.
How does Bike to Work Ltd calculate the market value payment?
Bike to Work Ltd has chosen the best option for the employee. The market value is calculated as below:Figure to which market value is applied = £480 is less than £500, therefore
Here’s an example based on an equipment value of £450 including a £30 Helmet and VAT:
12 month valuation percentage = 18%
4 year valuation percentage = 3%
4 year valuation = 433.34 * 3% = £13.00 + VAT = £15.60
Will HMRC update this guidance again?
We do not believe that HMRC will update their guidance on ‘acceptable disposal percentages’.
If the employment status of a scheme participant changes, what happens?
During the initial hire period, if Bike to Work Ltd 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 Bike to Work Ltd, as the agreement is between Bike to Work and the employee. If the employee changes jobs the agreement is still valid.