The Death of Cycle to Work?

[Downward]

With the public sector as well there is no way anyone will be able to recover the bikes. We have Copiers that are at the end of lease and getting the company to take them back is a nightmare. I recall we had one expired in 2001 and it got took away finally in 2009. You could be really awkward if they did want a crazy amount for your bike and in the end they would give up. Infact all they would do is send out a stock letter a few times.

 

[Downward]

I think Cyclescheme have won the Tender to supply the PS and it expires in 2012. By then the owners will be too rich to worry about it dying out. All it is is a few admin people anyway cause thats all they do administer the scheme.

 

[Norm]

So what happens if, at the end of your scheme, they (whoever 'they' are) turn around and say they want more than you are prepared to pay? What then?

You walk away. What would you expect to happen?

What if the bike is stolen?

I know you have to pay your lease payments, but surely the loss of the bike should be covered by the owners insurance.

How would buying the (now non existant) bike go ahead in this case?

Every cycle to work policy that I've seen puts the obligation for insurance on the employee who is hiring the bike, not on the employer / owner.

1. Buy bike for £1000 on C2W scheme
2. Pay roughly £50 per month (depending on your tax band)
3. After 12 months, you've paid £600
4. You have the bike valued (properly) and it's worth £600
5. So employer asks for £600
6. Total cost of a £1000 bike = £1200

hahaha - brilliant This is one of the reasons why in real life it would never happen, though I stand to be corrected that it has happened to anyone.

The "fail" here is, as I pointed out above, that we are in a transition. Most Cycle To Work schemes are currently set up so that the employee pays off the total purchase price of the bike by way of the salary deductions and pays a nominal fee to buy the bike at the end of the rental period. This is not how the schemes should work.

What should happen is that the total amount the employee pays covers the value of the bike. Thus, in your example:

1. Employer buys bike for £1000 on C2W scheme
2. Employee signs a salary sacrifice to reduce their salary by £33 per month
3. After 12 months, you've sacrificed £400 (although, depending on your tax band, this has only cost you around £200)
4. You have the bike valued (properly) and it's worth £600
5. So employer asks for £600
6. Total cost of a £1000 bike = £800

The savings are not as much as doing it illegally, as most schemes have done in the past, but that is how the rules have always been set out and you still make a saving.

 

[BenM]

What should happen is that the total amount the employee pays covers the value of the bike. Thus, in your example:

1. Employer buys bike for £1000 on C2W scheme
2. Employee signs a salary sacrifice to reduce their salary by £33 per month
3. After 12 months, you've sacrificed £400 (although, depending on your tax band, this has only cost you around £200)
4. You have the bike valued (properly) and it's worth £60 because you have sensibly trashed it or bunged the valuer a bottle of good plonk
5. So employer asks for £60
6. Total cost of a £1000 bike = £460

The savings are not as much as doing it illegally, as most schemes have done in the past, but that is how the rules have always been set out and you still make a saving.

Fixored to illustrate how to get a real Bargain!

B.

 

[Downward]

You walk away. What would you expect to happen?


Every cycle to work policy that I've seen puts the obligation for insurance on the employee who is hiring the bike, not on the employer / owner.



The "fail" here is, as I pointed out above, that we are in a transition. Most Cycle To Work schemes are currently set up so that the employee pays off the total purchase price of the bike by way of the salary deductions and pays a nominal fee to buy the bike at the end of the rental period. This is not how the schemes should work.

What should happen is that the total amount the employee pays covers the value of the bike. Thus, in your example:

1. Employer buys bike for £1000 on C2W scheme
2. Employee signs a salary sacrifice to reduce their salary by £33 per month
3. After 12 months, you've sacrificed £400 (although, depending on your tax band, this has only cost you around £200)
4. You have the bike valued (properly) and it's worth £600
5. So employer asks for £600
6. Total cost of a £1000 bike = £800

The savings are not as much as doing it illegally, as most schemes have done in the past, but that is how the rules have always been set out and you still make a saving.

On £1000 you sacrifice £83.33. Your company save on NI contributions themselves on £1000 so buying a £1k bike they are not losing £600 on it. Infact they are saving £10 per month on NI contributions or £120 per year so they are gaining.

 

[Jezston]

Where do you get the £33 per month figure from?

A £1000 bike would cost me around £50 a month (based on my £400 bike costing me £20 a month), and that's AFTER the tax adjustment. So to adjust your figures it would be:

1. Employer buys bike for £1000 on C2W scheme
2. Employee signs a salary sacrifice to reduce their salary by £50 per month
3. After 12 months, you've sacrificed £600
4. You have the bike valued (properly) and it's worth £600
5. So employer asks for £600
6. Total cost of a £1000 bike = £1200

 

[Downward]

Where do you get the £33 per month figure from?

A £1000 bike would cost me around £50 a month (based on my £400 bike costing me £20 a month), and that's AFTER the tax adjustment. So to adjust your figures it would be:

1. Employer buys bike for £1000 on C2W scheme
2. Employee signs a salary sacrifice to reduce their salary by £50 per month
3. After 12 months, you've sacrificed £600
4. You have the bike valued (properly) and it's worth £600
5. So employer asks for £600
6. Total cost of a £1000 bike = £1200

Yeah see above ! My employer states on my payslip that £83.33 is deducted. I work out that actually with Tax and NI reduced this is about £55. So your company are not losing anything (infact gaining 12% per scheme) and Cyclescheme making a cool 15% per sale. The only losers are HMRC who don't see the £40 per month that they would normally get from the deduction on your salary.

 

[Norm]

All of which perfectly illustrates the point about current practice which I was making.

My figures were the way that the schemes should be set up to keep within the regulations.

On £1000 you sacrifice £83.33.

Because your scheme was set up to recover the capital cost of the bike through the rental payments. This is wrong.

If the scheme was to take into account the requirement for the bikes to be sold at market value, then you can allow for this by deducting a smaller amount in rental payments.

 

[Jezston]

Norm, I do appreciate the info you've been providing on this thread, however I think you might actually be getting something wrong here.

Entering my details on cyclescheme.co.uk 's own calculator on their website gives me more or less identical figures to what I estimated (final cost of bike - £587, or £48 a month) - the only way to bring that down is if I had a salary in the highest tax bracket which takes the final cost down to £502 (or £42 a month) - still way above your quoted figures.

Surely the figures I get from there have got to be accurate?

 

[Downward]

All of which perfectly illustrates the point about current practice which I was making.

My figures were the way that the schemes should be set up to keep within the regulations.


Because your scheme was set up to recover the capital cost of the bike through the rental payments. This is wrong.

If the scheme was to take into account the requirement for the bikes to be sold at market value, then you can allow for this by deducting a smaller amount in rental payments.

Well Cyclescheme have managed to sign up a lot of Public Sector organisations and have release this. HMRC has clarified their stance on the sale of cycles (or Transfer of Ownership) to employees after the end of a hire period by stating the following: ‘… An employer or a third party cycle provider may choose to offer the cycle for sale to the employee after the loan has ended. If the employee is able to buy the cycle for less than its market value, the difference will be liable to tax and to employer’s Class 1A NIC liability’; and ‘each cycle that is sold in this way should be valued at the time of sale’; It is worth pointing out that the sale of cycles after the end of the hire period will have no bearing on the original tax exemption under the salary sacrifice arrangement; any subsequent liability for the perceived shortfall in the amount charged for the sale will be limited to the employee’s tax and employer’s NI. To avoid any such liability, Cyclescheme recommends employers to nominate at any point during their scheme to transfer ownership of all Bicycles to Cyclescheme, and take advantage of our free-of-charge Transfer of Ownership service. Alternatively, employers who choose to administer the sale of cycles themselves will need to seek expert advice to value Bicycles after the end of each individual hire period, or direct employees to do so independently, and charge an appropriate Fair Market Value. Cyclescheme pays the employer a one-off nominal fee to transfer the ownership of all bikes, and subsequently handles all aspects of the administration of the sale of cycles to the employees. There is no cost to the employer, but Cyclescheme retains Fair Market Values paid by the employees. After the end of each hire period Cyclescheme will contact the employee to assess the condition of the Bicycle and issue a Secondary Agreement for the appropriate value. Cyclescheme utilises the extensive knowledge and experience of its Partner Bike Shops, currently numbering over 1500 outlets across the UK, when evaluating the condition of bikes. Needless to say, it is not possible to predict the market value of a bike prior to the end of the hire period, but in our experience the bike’s value is typically a fraction of the original retail price due to the frequency of usage encountered when commuting to work throughout the year and any additional leisure usage. Employees can pay to take ownership of bikes with ease using our on-line payment portal, and Cyclescheme issues a full receipt to the employee. All stages of the transaction and the value of sale are stored securely on our Extranet system, accessible to employer administrators at all times.

 

[GrasB]

How do you get to the £33/month for the bike Norm? Working on the system we have at work (a slightly odd-ball 10 month period but it gets around issues with yearly contracts & awarded grants)...

1. Employer buys bike for £1250 on C2W scheme
2. Employee signs a salary sacrifice to reduce their salary by ~£87.50 per month net (£125 gross) over 10 months
3. After 10 months, you've sacrificed £875 of your net salary
4. You have the bike valued (properly) and it's worth £750
5. So employer asks for £750
6. Total cost of a £1250 bike = £1625

 

[DrSquirrel]

Well Cyclescheme have managed to sign up a lot of Public Sector organisations and have release this. HMRC has clarified their stance on the sale of cycles (or Transfer of Ownership) to employees after the end of a hire period by stating the following: ‘… An employer or a third party cycle provider may choose to offer the cycle for sale to the employee after the loan has ended. If the employee is able to buy the cycle for less than its market value, the difference will be liable to tax and to employer’s Class 1A NIC liability’; and ‘each cycle that is sold in this way should be valued at the time of sale’; It is worth pointing out that the sale of cycles after the end of the hire period will have no bearing on the original tax exemption under the salary sacrifice arrangement; any subsequent liability for the perceived shortfall in the amount charged for the sale will be limited to the employee’s tax and employer’s NI. To avoid any such liability, Cyclescheme recommends employers to nominate at any point during their scheme to transfer ownership of all Bicycles to Cyclescheme, and take advantage of our free-of-charge Transfer of Ownership service. Alternatively, employers who choose to administer the sale of cycles themselves will need to seek expert advice to value Bicycles after the end of each individual hire period, or direct employees to do so independently, and charge an appropriate Fair Market Value. Cyclescheme pays the employer a one-off nominal fee to transfer the ownership of all bikes, and subsequently handles all aspects of the administration of the sale of cycles to the employees. There is no cost to the employer, but Cyclescheme retains Fair Market Values paid by the employees. After the end of each hire period Cyclescheme will contact the employee to assess the condition of the Bicycle and issue a Secondary Agreement for the appropriate value. Cyclescheme utilises the extensive knowledge and experience of its Partner Bike Shops, currently numbering over 1500 outlets across the UK, when evaluating the condition of bikes. Needless to say, it is not possible to predict the market value of a bike prior to the end of the hire period, but in our experience the bike’s value is typically a fraction of the original retail price due to the frequency of usage encountered when commuting to work throughout the year and any additional leisure usage. Employees can pay to take ownership of bikes with ease using our on-line payment portal, and Cyclescheme issues a full receipt to the employee. All stages of the transaction and the value of sale are stored securely on our Extranet system, accessible to employer administrators at all times.

I'm kind of horrified at this.

I always wondered what cyclescheme actually does... since at the end the bike is the ownership of your company so they shouldn't be inolved, this is a way for them to get involved it seems. I doubt many companies need to get "expert advice". And a lot of companies are already used to using salary sacrifice for various reasons anyway, but of course cyclescheme suggesting administering it is harder than it is is good business...

Transferring ownership of items to employees is not uncommon either...

This also possibly answers my question as to how cyclescheme can invoice end users (as I have read some people mentioning), and saying they need to pay for disposal if you don't buy it back.

More people need to tell their employers they can just keep the bike and loan it for free!

Cyclescheme is a whole load of bull...

How do you get to the £33/month for the bike Norm? Working on the system we have at work (a slightly odd-ball 10 month period but it gets around issues with yearly contracts & awarded grants)...

1. Employer buys bike for £1250 on C2W scheme
2. Employee signs a salary sacrifice to reduce their salary by ~£87.50 per month net (£125 gross) over 10 months
3. After 10 months, you've sacrificed £875 of your net salary
4. You have the bike valued (properly) and it's worth £750
5. So employer asks for £750
6. Total cost of a £1250 bike = £1625

You do have to remember you are not paying to own it... you are leasing it. If you leased a bike for say 12 months, and then went out and bought a second hand 12 month old bike... you'd pay the same.

Which is obviously just as crazy as your calcs.

Basically this is some kind of convoluted "hire purchase" scheme where the government is allowing it for these specific items, but you still have to "hide" the fact it's most likely to be purchased at the end (guidance says not to specific that it can be sold at the end, but only it MAY be available for purchase).

If HMRC is really going to "crack down" on fair market value, they are either crazy or blind to what they are doing.

If the government can set up this scheme, why can't they just allow hire purchase!

 

[Norm]

#1 I would advise any company NOT TO TRANSFER THE OWNERSHIP OF THE BIKES TO CYCLESCHEME. EVER. They are a profit making organisation which will screw the employees.

And, please will people broaden their horizons. All the stuff which is quoting current schemes just emphasises that they are not set up properly because they all assume the nominal fee to sell the bikes at the end of the rental period. And yes, I would say that includes the cyclescheme.

How do you get to the £33/month for the bike Norm? Working on the system we have at work (a slightly odd-ball 10 month period but it gets around issues with yearly contracts & awarded grants)...

1. Employer buys bike for £1250 on C2W scheme
2. Employee signs a salary sacrifice to reduce their salary by ~£87.50 per month net (£125 gross) over 10 months
3. After 10 months, you've sacrificed £875 of your net salary
4. You have the bike valued (properly) and it's worth £750
5. So employer asks for £750
6. Total cost of a £1250 bike = £1625

As I said, the bit I've highlighted show that it is your employers current scheme is wrong. The bit you've highlighted shows how this doesn't work. (And I'm hoping that your employer has a consumer credit licence, or they are giving themselves a whole new problem by going over £1000 - but I'll leave that aside)

I arrived at £33 because it makes the deduction £400 over the rental period. Add that to the anticipated £600 value for the bike at the end of the rental period and you get to the capital cost. There is no requirement in legislation or recommendations for the rental payments / salary deduction to equal the capital value of the bike.

Once you guys get away from that, the rest will, I'm sure, fall into place.

Norm, I do appreciate the info you've been providing on this thread, however I think you might actually be getting something wrong here.

Entering my details on cyclescheme.co.uk 's own calculator on their website gives me more or less identical figures to what I estimated (final cost of bike - £587, or £48 a month) - the only way to bring that down is if I had a salary in the highest tax bracket which takes the final cost down to £502 (or £42 a month) - still way above your quoted figures.

Surely the figures I get from there have got to be accurate?

Yes, they accurately show that cyclescheme's calculator wrongly requires the rental payments to cover the capital cost.

I'll say it again, every example given on here so far illustrates nothing other than the scheme administrators have got it wrong.

 

[2Loose]

Nope, I think (know) that Norm has it correct. Well, the way it SHOULD be run anyway.

In current practice however, people like us who are n+ months into the scheme are cacking bricks because it could mean we will spend more than retail cost when we were assured it would cost less.

In Norm's (no offence) by the book world, it would be done properly, as he has stated, resulting in a good discount over the year for the purchaser. But this clampdown so far looks like it will mean that we (who have our schemes run by cyclescheme or whoever) may well end up paying more in the end than using our credit cards in the first place.

It looks like HMRC are trying to provide a way forward via valuation matrix or whatever, but at the moment things are very unsettled and uncertain, therefore the worry.

Half of my bike is now not original because parts were worn out, any idea if that could count of the final valuation. I mean a bike with 1 original wheel and no drive train is going to be worth pretty much nothing! (I win?)

 

[GrasB]

This is all fine & dandy but how does one work out what the rental charge should be. This leads on to the interesting question, of which Norm could well give the best answer, but does the guidance give any idea of how much of the bikes value should be charged as rental?