Throughout the hire period, the bikes – and any other equipment – are still the property of the company. HMRC guidance advises that for a programme to be tax compliant, a company cannot simply hand over everything to the employees when the hire period ends. They must transfer ownership through certain methods: Market Value, P11D or Managed Extended Hire.
Also read Who owns the Cycle to Work equipment?
We strongly recommend Managed Extended Hire through Halfords to ensure a hassle-free, 100% compliant process. But for transparency, we'll look at each option in turn here.
Managed Extended Hire Process with Halfords
Halfords work with the UK's top tax advisors to make sure that our clients' programmes stick to the HMRC rules. The process is simple:
1. The client will be notified when employees are reaching the end of their hire period. The client should then download a list of employees whose hire period is at the end via RewardManager™.
2. The client will then raise an invoice to send to Halfords for £1 plus VAT – one for each employee on this list.
3. Halfords take ownership of the bike and will contact the employees with 3 options:
- Our strongly suggested option is to enter into a Managed Extended Hire agreement with Halfords. Although still part of a hire agreement, there is no further cost or payment required from the employees. Choosing this method means no extra tax needs to be paid.
- Employees can return the bike to Halfords and it will be donated to charity.
- They can take ownership of the bike for 18% or 25% of the cost – this is roughly the amount the client will save with the first option!
Halfords manage all the administration, so the client can be happy knowing everything has been taken care of to save their employees the most money possible.
With Halfords taking ownership of the bikes at the end of the hire agreement, employees can apply for the Cycle to Work programme again – so it's a great opportunity for employers to open another application window.
To get this going, the client needs to send a signed copy of the addendum – which confirms they are happy for Halfords to process their end of hires. Then all we need the client to do is raise an invoice with Halfords at the end of each hire agreement.
With this option, the employer simply gives the bike to the employee at the end of the scheme. They will need to report a taxable benefit in kind (BIK) to HMRC of the value of the bike on the employee's P11D form using the HMRC table.
As an example, a 12-month-old £1,000 bike would have a remaining value of £208.25 (25% of £1,000 less VAT) and the taxman would charge tax on the £208.25 - which for a lower rate (20%) taxpayer, would be £41.65. Higher rate (40%) taxpayers would pay £83.33.
The BIK value is the value of the bike and not any safety equipment such as clothing, etc.
Employees don't even have to find this sum because the P11D has the effect of adjusting their tax code up slightly for the following year. So the tax due will be recovered by HMRC over the course of the following year. This is about £3.47 per month for our lower rate example. The figures will vary slightly depending on the employer's VAT status and of course the original purchase price of the bike but this isn't far from the original values.