Confused by Cycle to Work Scheme changes

[Custom24]

Hi
When I looked at the cycle to work scheme a couple of years ago, I decided that it wasn't worth it for me. I'm a higher rate tax payer, but even so, on a £400 bike and £300 worth of accessories, I decided that it would save me about £30. The main reason for this disappointing saving was that HMRC rules at the time stipulated a market value of around 25% which needed to be paid in order to keep the bike after the hire period. The other reason was that because my company is small, the scheme had to go through one of the intermediate companies, and with their cut, the bike shop was not able to offer me any discount.

However, I'm now thinking about buying a new bike, and looking at this page, things seem to have changed?

http://www.cyclescheme.co.uk/employers/employer-updates/hmrc-update

Is that real? The bit in the flowchart which makes me skeptical is the question "Employee wishes to pay as little as possible for the bike?".

Isn't that the same kind of question as "Cake or Death?". Hmmm, cake please.

Has something changed since I looked at this a couple of years ago?

 

[vickster]

Ask your hr department, not all schemes are created equal

 

[400bhp]

Are you using Cyclescheme?

If so, then generally they will provide you with an extended hire agreement for 4-5 years. You still pay installment over the first 12 months. HMRC have a sliding scale for the bike value ranging from 25% after year 1 down to 0% after year 5. Hence, if your hire agreement is over 5 years you pay £0 for the bike at the end.

 

[Custom24]

We are a tiny company. We don't have a hr department, so we'd sign up with an intermediary, like cyclescheme.

We looked at this a couple of years ago and based on my example above, we decided not to bother with it.

But now I'd like the company to look at it again.

My question really is about the residual market value, because that was the deal breaker a couple of years ago. Have the rules around this changed? If not, how are cycle scheme able to offer this 3/7% deposit for the extended 36 months?

Actually, I think I may have figured it out. The rules haven't changed, but cycle scheme are just bending them. What they are doing if you go down the 3/7% route is basically acting as if the hire agreement had been longer in the first place. Does that sound plausible?

 

[donnydave]

Isn't that the same kind of question as "Cake or Death?". Hmmm, cake please.

Death please. No! Wait!, I meant cake!

Ahhhh, you said Death!

No, I meant cake!

Well we're out of cake I'm afraid

What? So my choice is "or death"?

 

[400bhp]

Actually, I think I may have figured it out. The rules haven't changed, but cycle scheme are just bending them. What they are doing if you go down the 3/7% route is basically acting as if the hire agreement had been longer in the first place. Does that sound plausible?

Yes.

My last C2W bike was off Cyclescheme. I have literally just last week signed the extended use agreement.

The main advantage with Cyclescheme (being a C2W company) is that they provide a voucher to use at a participating retailer. They have many many participating retailers. Cyclescheme charge an admin fee to the retailer of (IIRC) 10% of the value of the voucher. So, for the end user, they simply go into a participating retail and hand over the voucher in exchange for a bike. Some online retailers now offer Cyclescheme too (e.g. Planet X & Ribble).

However, not all retailers treat the scheme the same. Because of the admin fee from cyclescheme, some will pass this back to the employee through an additional fee on top of the purchase price and some may not give you the full freedom of bikes to choose (e.g. won't permit you to buy a discounted bike).

 

[Koga]

As far as I am aware a company can run their own Cycle to Work Scheme. It simply means the company needs to provide all the paperwork / agreement. In this case the company will buy the bike direct from the shop (you will have to choose and prepare this).
Most cyclescheme's charge for the service (10% or £100 ? also see above 400bhp comments) which can be passed on to you. If so, this will reduce the effective savings significantly. If your company runs the scheme, you will save on this.
All the best.

 

[BSRU]

What they are doing if you go down the 3/7% route is basically acting as if the hire agreement had been longer in the first place. Does that sound plausible?

For Cyclescheme the 3/7% is a deposit so you can extend the hire for three more years with no extra payments.
At the end of the three years(now four years in total) you can return the bike(at your expense) to get your deposit back or keep the bike as it is now yours as the deposit equates to the HMRC fair value after 4 years.
In effect when you pay the 3/7% after the first year the bike is yours.

 

[MrGrumpy]

My works scheme is different 18 month hire agreement then pay a £1 and keep the bike. I then pay tax on the 21% fair market value if the bike. Seemed like a good deal however I know that all or not equal. Might be better value on a zero per cent?

 

[stevede]

Just about to sign up with my works one when the window opens on 17th March. Run by Cycle Plus it operates over 18 months and the residual value my employer will put on to my P11D.
I'm looking at a Spesh Roubaix at £1600 (no discounts to be had on the 2014 models) The store don't charge a fee and I calculate I will save just shy of £600 and get an 18 month interest free loan.

 

[buggi]

Basically it works like this.

The 12 month period is a hire period. You are not paying off the bike, you are hiring it. At the end of the hire perod Cyclescheme give you two options. Either buy the bike for a small amount or give it back. At the time they could charge you only a nominal amount, (usually same as the last payment). The government in their wisdom then introduced a new rule to state that cyclescheme had to sell you the bike at "market value" and had a sliding scale for it. Obviously you, Cyclescheme and everyone else realised there was no point in this because, as you say, it meant you saved only £30 or so.

So Cyclescheme, fearing loss of business, found a loophole. They worked it out that they could continue the hire period to 3 years (and charge what they liked) and then the bike would transfer to your name. So that's what they did. you pay a one of payment of around £20 for the extended hire period and then, on the governments sliding scale, the bike is worth nothing, so they transfer it to your name for zilch.

that in a nutshell is how it basically works.

 

[MrGrumpy]

Sounds ok if that is what it is, seems to vary for some folk. Mine is very similar to Stevede`s although it limited to £1000 normally.

 

[stevede]

Sounds ok if that is what it is, seems to vary for some folk. Mine is very similar to Stevede`s although it limited to £1000 normally.

Ours too is limited to a std £1000, but if HR agree (which they have in my case) they will authorise higher.

 

[Custom24]

Hi again
I'm about to ask my employer to sign up to http://www.cyclescheme.co.uk/

Can I just see if any of you spot anything I've missed?

I want to buy just a bike for the max value (£1,000). I am a higher rate tax payer (40%).

So in principle by gross salary sacrifice, I will save approximately £400 on the RRP.

However, the following will subtract from this saving;
1. Most bike shops will charge me an "admin fee" of 10% (£100) for buying the bike through this scheme.
2. The 7% (£70) deposit to extend the use of the bike for another 3 years.
3. I can't negotiate any discounts off RRP with the bike shops using the scheme. In fact some won't even sell sale bikes through this. Not quantifiable really (may be partially already covered by 1 above), and in any case for the bikes I am looking at, I probably wouldn't be able to negotiate a discount anyway. Although, not as simple as that as I might be looking at sale bikes if I were buying this directly.

Anyway, my saving is now £400 - £170 = £230

Risks.
1. I get made redundant during the hire period. Then I have to pay the remaining hire charges out of my own funds, without the benefit of tax reduction. If this happens early on, because of the £100 admin fee, I will be worse off than if I had just bought the bike.
2. Cyclescheme or something else changes their rules about the buy back 7% amount, and enforce the Fair Market Value 25% amount. I'm not sure if they can do this - I guess I will have to look at the small print before I sign the scheme. Anyway, if that happened, it would reduce my saving to very little.

Thanks for all your help on this.

Mark

 

[BSRU]

Hi again
I'm about to ask my employer to sign up to http://www.cyclescheme.co.uk/

Can I just see if any of you spot anything I've missed?

I want to buy just a bike for the max value (£1,000). I am a higher rate tax payer (40%).

So in principle by gross salary sacrifice, I will save approximately £400 on the RRP.

However, the following will subtract from this saving;
1. Most bike shops will charge me an "admin fee" of 10% (£100) for buying the bike through this scheme.
2. The 7% (£70) deposit to extend the use of the bike for another 3 years.
3. I can't negotiate any discounts off RRP with the bike shops using the scheme. In fact some won't even sell sale bikes through this. Not quantifiable really (may be partially already covered by 1 above), and in any case for the bikes I am looking at, I probably wouldn't be able to negotiate a discount anyway. Although, not as simple as that as I might be looking at sale bikes if I were buying this directly.

Anyway, my saving is now £400 - £170 = £230

Risks.
1. I get made redundant during the hire period. Then I have to pay the remaining hire charges out of my own funds, without the benefit of tax reduction. If this happens early on, because of the £100 admin fee, I will be worse off than if I had just bought the bike.
2. Cyclescheme or something else changes their rules about the buy back 7% amount, and enforce the Fair Market Value 25% amount. I'm not sure if they can do this - I guess I will have to look at the small print before I sign the scheme. Anyway, if that happened, it would reduce my saving to very little.

Thanks for all your help on this.

Mark

The admin fee is already in the price of the bike, unless it is a sale bike(often they will add 10% to a sale bike price for a C2W purchase).
It is not in cyclescheme's interest to change the 7% hire period continuation fee.