Quality | 2010.08.13
Cycle to Work scheme put in peril by tax change
Newly clarified rules could threaten initiative by making users pay more than they expected for bargain bicycles
More than 400,000 people have taken advantage of the government\'s Cycle to Work scheme, which provides tax-deductible bikes for those wanting to pedal to the office. But newly clarified tax rules could threaten the popular initiative by making users pay more than they expected for their bargain bicycles.
Until now those taking part in the salary sacrifice scheme expected to get a bicycle at an effective discount of up to 50% on the shop price, depending on their tax band.
The way it generally worked was for employees to "hire" a bike from their employers and pay back the cost of the bike by monthly instalments taken from their salary before tax. At the end of the hire scheme, which usually lasted 12 or 18 months, the bikes were sold to the employee for their "fair market value" (ie secondhand price).
The tax office did not elaborate on what exactly was fair, though it was widely taken as 5% of the original shop value.
But Her Majesty\'s Revenue and Customs has decided that the 5% figure vastly undervalues most year-old bicycles. It believes, for example, that a £1,000 full carbon racing bike is worth rather more than £50 if ridden moderately carefully for a year, and has tightened up its rules. The new estimations apply retrospectively as well as to bikes purchased on the scheme in the future.
In new guidance , HMRC says that a bike costing £500 or less new will be worth 18% of that price one year on, 16% after 18 months, 13% after two years and almost nothing after five. For one costing more than £500, it reckons the bike will have depreciated to 25% of its original price tag after one year.
It will, however, be possible for employees to argue that their bikes are worth much less – for example if they are scratched, damaged or have been stolen – said a HMRC spokesman.
"The cycle to work scheme is a very generous tax break and remains so," he added.
However, cycle shops said the new rules could ruin the scheme.
"We are worried there will be a reduction in the attractiveness of the scheme, reducing take up, and hampering delivery of the government\'s priorities on the low-carbon economy and on active living," said the Cycle to Work Alliance, a consortium of Halfords, Evans Cycles and voucher providers Cyclescheme.
One store selling high-quality Dutch bicycles has calculated that a typical customer would now make a saving of just £19 as a result of the regime change, bikebiz.com reported.
For more information, please visit
http://www.guardian.co.uk/money/2010/aug/13/cycle-to-work-scheme-tax
