Cycle to Work Scheme ?

[Linford]

I just had a chat with the lady who runs the admin side in the company office regarding the cycle to work scheme. She said she looked into it last year, but wasn't really impresssed with what the paperwork said, and so didn't go any further with it.

Has anyone got any experience of it, and if so what are the pro's and the con's ?

Ta in advance

 

[GrumpyGregry]

Norm is the expert.

Think your lady is talking nonsense btw, it is harder to fall off a log than set things up.

 

[Linford]

She mentioned something about the company buying the bike off designated companies for full screw, then company then rents the bike to the worker at a given sum which is deducted fro the wages, and then at the end of the term, it is then sold to the worker at the 'market price' - whatever that is

Sounds like little incentive to join it from what she said

 

[MattHB]

I've done it. But make sure the company claim the VAT back, there are several ways to set it up and not all of them make it worth while.

At the end of the deal you can buy it at market value, or pay a small fee and extend the scheme by 3 years, but not make any payments in that time. Even extended you can still partake in the scheme again before the first one is complete.

 

[lejogger]

There have been many changes to the scheme over recent months and it is very important which scheme you choose or whether it is done in house.

I set up our scheme, and despite all the changes i DO believe that it is very worth while. Here is an overview of how ours works:

Company buys the cycle at full price and then claims back the VAT. Eg. Buy bike for £1,000 (max) and claim back 20% (£200).

You enter into a 12month hire agreement where £83.33 is deducted from your gross salary. Because this is your gross salary, when you pay NI contributions and income tax on your wage, this is now calculated on a smaller salary so you pay less. This will be either a 31% or 51% saving (approximate) depending on whether you are a standard or higher rate tax payer. (Note that 12x83.33=£1000 not £800. This is because after a legal change last year you now have to pay VAT on salary sacrifices).

After 12 payments my company gift the bike to you. (They've recovered the full £800 that they've paid out, and they've also syphoned the additional VAT payment to HMRC)

Because you received a gift that according to HMRC is worth £250,the company completes a P11d declaring your benefit in kind and your tax code for the following year is altered by £250. So you pay tax worth either £50 or £100 (std or hgr rate) spread over 12 months.

Total cost to you (Std rate taxpayer) 57.50x12=£690 + £50 = £740
Total cost to you (higher rate taxpayer) 42.50x12=£510 + £100 = £610

The figures speak for themselves on a £1k bike, especially because of the spread out payments.

The only thing you need to be wary of is C2W companies who insist on keeping ownership on the bike. They will cost you more as their profit will come out of your savings. I.e. they won't gift you the bike, they will make you pay more for it, and keep ownership of it for longer so that the residual value drops.

Hope this helps anyway - let me know if you have any more specific questions.

 

[MattHB]

Ours is like the above, but they set the scheme up wrong and don't claim the VAT back. So make sure you find out, I didn't until afterwards!

 

[lejogger]

Ours is like the above, but they set the scheme up wrong and don't claim the VAT back. So make sure you find out, I didn't until afterwards!

That's a bit odd. Could they not do this retrospectively?

If you're a public sector org like the NHS you could never claim the VAT back anyway. They have since changed this so they can seeing as the VAT is owed on the Sal sacrifice. Schemes in place before July '11 will continue to operate under the old rules though.

 

[MattHB]

That's a bit odd. Could they not do this retrospectively?

If you're a public sector org like the NHS you could never claim the VAT back anyway. They have since changed this so they can seeing as the VAT is owed on the Sal sacrifice. Schemes in place before July '11 will continue to operate under the old rules though.

I'm still waiting for an answer from HR, but that is likely to take ages knowing our HR! It's a bit rubbish.

 

[Red Light]

Ours you pay an extension deposit of 7% or 3% of the original value (depending on whether it cost more or less than £500) to extend the hire for an extra 31 months. You pay no fees during that extra period and at the end they use the deposit to offset the final value payment thus transferring the bike for no extra cost. This allows it to mimic the earlier incarnation where you paid a nominal amount after the first year to own the bike and IMO is better than the scheme lejogger outlines in that after one year you pay 25% or 18% of the original price which equates to a benefit in kind tax of 5% or 10% instead of 7% and 3.6% or 7.2% instead of 3% depending on whether you are a lower or higher rate taxpayer.

 

[400bhp]

There have been many changes to the scheme over recent months and it is very important which scheme you choose or whether it is done in house.

I set up our scheme, and despite all the changes i DO believe that it is very worth while. Here is an overview of how ours works:

Company buys the cycle at full price and then claims back the VAT. Eg. Buy bike for £1,000 (max) and claim back 20% (£200).

You enter into a 12month hire agreement where £83.33 is deducted from your gross salary. Because this is your gross salary, when you pay NI contributions and income tax on your wage, this is now calculated on a smaller salary so you pay less. This will be either a 31% or 51% saving (approximate) depending on whether you are a standard or higher rate tax payer. (Note that 12x83.33=£1000 not £800. This is because after a legal change last year you now have to pay VAT on salary sacrifices).

After 12 payments my company gift the bike to you. (They've recovered the full £800 that they've paid out, and they've also syphoned the additional VAT payment to HMRC)

Because you received a gift that according to HMRC is worth £250,the company completes a P11d declaring your benefit in kind and your tax code for the following year is altered by £250. So you pay tax worth either £50 or £100 (std or hgr rate) spread over 12 months.

Total cost to you (Std rate taxpayer) 57.50x12=£690 + £50 = £740
Total cost to you (higher rate taxpayer) 42.50x12=£510 + £100 = £610

The figures speak for themselves on a £1k bike, especially because of the spread out payments.

The only thing you need to be wary of is C2W companies who insist on keeping ownership on the bike. They will cost you more as their profit will come out of your savings. I.e. they won't gift you the bike, they will make you pay more for it, and keep ownership of it for longer so that the residual value drops.

Hope this helps anyway - let me know if you have any more specific questions.

I agree with what you have said but it's worth highlighting the benefit in kind part. It is not automatic that the scheme has to be set up as a b-i-k and you could be paying tax the whole of the final payment. (I know that a particular company that consults on these benefits to its clients actually have its employees paying the final payment in full).

 

[lejogger]

Ours you pay an extension deposit of 7% or 3% of the original value (depending on whether it cost more or less than £500) to extend the hire for an extra 31 months. You pay no fees during that extra period and at the end they use the deposit to offset the final value payment thus transferring the bike for no extra cost. This allows it to mimic the earlier incarnation where you paid a nominal amount after the first year to own the bike and IMO is better than the scheme lejogger outlines in that after one year you pay 25% or 18% of the original price which equates to a benefit in kind tax of 5% or 10% instead of 7% and 3.6% or 7.2% instead of 3% depending on whether you are a lower or higher rate taxpayer.

I think it's swings and roundabouts to be honest. From an employee's point of view you may pay marginally less with Red Light's example, but you also don't actually own the bike until later down the line.
From an employer's point of view I'd rather get the transfer of ownership over as quickly as possible to avoid the hassles that come with staff leaving mid-agreement.

Either way though, I think overall the C2W scheme, in whatever guise, is usually a good deal for most people.

 

[GrumpyGregry]

Ours you pay an extension deposit of 7% or 3% of the original value (depending on whether it cost more or less than £500) to extend the hire for an extra 31 months. You pay no fees during that extra period and at the end they use the deposit to offset the final value payment thus transferring the bike for no extra cost. This allows it to mimic the earlier incarnation where you paid a nominal amount after the first year to own the bike and IMO is better than the scheme lejogger outlines in that after one year you pay 25% or 18% of the original price which equates to a benefit in kind tax of 5% or 10% instead of 7% and 3.6% or 7.2% instead of 3% depending on whether you are a lower or higher rate taxpayer.

That pretty much mimics cyclescheme's 'rules'.

 

[lejogger]

I agree with what you have said but it's worth highlighting the benefit in kind part. It is not automatic that the scheme has to be set up as a b-i-k and you could be paying tax the whole of the final payment. (I know that a particular company that consults on these benefits to its clients actually have its employees paying the final payment in full).

Very true, it's a good point to highlight. This is why I gave what my company do as the example and highlighted at the beginning that it's very important which scheme is chosen or whether it's done in house.
It is possible that after paying 12 payments you could get told that to buy the bike you have to pay the full £250 which despite still being fractionally better than paying full price, could still be a shock if unexpected, otherwise you'd have to return the bike and have nothing to show for your hire agreements. It's worth remembering that even though I've never known this to happen, the bike doesn't have to be offered to you to purchase at the end of the hire period.

 

[Red Light]

I think it's swings and roundabouts to be honest. From an employee's point of view you may pay marginally less with Red Light's example, but you also don't actually own the bike until later down the line.
From an employer's point of view I'd rather get the transfer of ownership over as quickly as possible to avoid the hassles that come with staff leaving mid-agreement.

There are no hassles with staff leaving after the first 12 months AIUI. They just keep on paying nothing until the 31 months are up.

 

[Leodis]

I joined our work Cycle scheme, its good if you can get over not owning the bike for 4 years but saving a couple of hundred