Valuing cycles on sale to employees
HMRC has issued guidance on a simplified method of valuing bicycles transferred to employees after end of loan period.
The cycle to work exemption in s 244, ITEPA 2003 relates solely to cycles that an employer purchases for use by its employees, but which are not sold to the employee.
After the loan period has ended, an employer or a third party cycle provider may choose to offer the cycle for sale to the employee. If the employee is able to buy the cycle for less than its market value, the difference will liable to tax and to employer’s class 1A NIC liability. At this point in time, it can be difficult to establish the cycle’s market value. In order to simplify the valuation, HMRC announced on 16 August an update to the Employment Income Manual, to include an optional simplified approach to valuing cycles sold after the end of a loan/ salary sacrifice period. See EIM21667 and EIM21667A for more details.
We welcome this move, which we and other professional bodies on HMRC’s Benefits and Expenses Employer Consultation Forum Sub-group helped to formulate.
Where a cycle is not sold to the employee and continues to be loaned beyond the original period set out in the salary sacrifice arrangement, the cycle-to-work tax exemption will continue to apply as long as the conditions continue to be satisfied.
We also take this opportunity to remind readers about the update to HMRC’s guidance EIM21664, issued on 14 December 2009 and effective from 18 December 2009, regarding employee salary sacrifice schemes to provide cycles and bus passes. This was publicised in our newswire for the week ended 20 December 2009 and reiterated in HMRC’s announcement dated 16 August.