Cycling to work - government discount on buying bikes!

Sporty Stu

Apparently the government have launched a new scheme to encourage people to cycle to work to reduce the amount of cars and pollution on the roads as well as getting people fitter.

I would love to buy a bike to cycle to work (wouldn't want to use my MTB to cycle to work on roads but would I probably buy a sports hybrid or maybe a roadbike!) I've heard you can get about 50% off the normal SRP of a bike as the government and the govenrment are going to be building more cycling lanes and other essential safety features for cyclists.

I can't seem to find much info about the scheme on the internet and would be really greateful if anyone knows anymore...

spasypaddy

http://www.cyclescheme.co.uk/

Sporty Stu

Thanks Spaspaddy someone already wrote about cyclescheeme in the MTB forum but that thread has been locked!?

Some other info I've also been sent is:

http://www.evanscycles.com/ride2work.jsp,item_id=429

A friend e-mailed this link to another scheme provider http://www.cyclesolutions.co.uk and in their links section there is some really useful info from the Department of Transport outlining how the scheme works: [url]www.dft.gov.uk/pgr/sustainable/cycling/cycletoworkschemeimplementat5732[/url

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RufusA

A few words of caution.

1) It only is feasible if your employer embraces the scheme - some people have found their employers are reluctant.

2) You are NOT buying a bike at a discount. Your employer buys a bike, you then rent the bike off your employer at an exhorbitant rate from your gross salary, and at the end of a set period you hope beyond all hopes that your employer will let you buy the bike off them for a pepercorn price.

er - that's it!

HTH - Rufus.

p.s. Don't let certain members catch you implying "cycling lanes" are "essential safety features"

CaptainCropper

RufusA wrote:

A few words of caution.

1) It only is feasible if your employer embraces the scheme - some people have found their employers are reluctant.

2) You are NOT buying a bike at a discount. Your employer buys a bike, you then rent the bike off your employer at an exhorbitant rate from your gross salary, and at the end of a set period you hope beyond all hopes that your employer will let you buy the bike off them for a pepercorn price.

er - that's it!

HTH - Rufus.

p.s. Don't let certain members catch you implying "cycling lanes" are "essential safety features"

I was informed that my employer would charge about 5% of the total cost of the bike as final settlement.

Hairy Jock

RufusA wrote:

A few words of caution.

p.s. Don't let certain members catch you implying "cycling lanes" are "essential safety features"

About time we had a decent cycle lane thread, this forum is so stale since they drove away most of the C+ crowd.

CamR

Our finance person at work has said that there is too much administration involved in the scheme therefore they are not going to get involved. Anyone else had a similar experience and know if it is actually that difficult. We are only a small company of 60 people

Cam :?

kema

Have a look at this example I have made to show how the scheme works.

You earn £1000 a month

bike costs £1000

You appear to "save" cash but you don't in real terms because over the year you pay
less income tax and pay no national insurance on the amount, and if you have a pension your employer will pay less into it because they take the bike money off before you have made any contributions, which if you earn a lot the National Insurance and Pension might be a lot to lose each month because they are based on a percentage off your gross wage; and I've just based mine on someone who earns £12000 a year buying a £1000 bike, imagine if you are buying a £2500 bike and you earn £28000, you would be losing a lot of your employers contribution and your own government contribution!!


This is where your employer makes the saving by paying no vat.
148.94 vat pay no vat

And you appear to make the saving because you don't pay
187.23 unpaid income tax
93.62 unpaid National Insurance

Total saving £429.79

bike only costs your employer £570.21
technically you've only paid £47.60 a month for your bike
(£570.21 divided by 12)

I think this appears quite good because you pay less tax but your employer gets their VAT back and you lose by not paying your Tax,National Insurance and paying less pension contributions.

I hope this explains it a bit clearer. If it's gibberish sorry

I worked this out using the calculator on this page.
http://www.cyclescheme.co.uk/employee,calculator.htm

cheers

kema

RufusA

CaptainCropper wrote:

I was informed that my employer would charge about 5% of the total cost of the bike as final settlement.

As has been discussed before, your employer can't agree a "final settlement" figure during the rental period as there is nothing to settle. The moment you start talking about final settlements, the nature of the agreement is no longer long term rental, but becomes a hire purchase.

If it's a hire purchase, then your employer will need a separate credit license, and it's not eligible for a "salary sacrifice", so has to come out of your taxed income!

Additionally if at the end of the period the employer offers to sell the bike to you at any less than "Market Value", it could be deemed a benefit in kind, and liable to tax and NI!

Would 5% of the original cost of the bike *really* be a fair market value for a 12 month old decent bike?

If a scheme was to operate within the letter of the tax law, you would probably lose out - paying for the bike in effect twice over! IMHO the Government have made the scheme uneccessarily overly complicated with HMRC and DFT not giving out the same messages.

It would have been far simpler for the Government to simply say companies can give a bicycle to an employee for use in commuting without a taxable benefit in kind.

Rufus.

alfablue

Despite the apparent complications the scheme works well in hundreds of companies. Many (but not all employers, such as NHS, Higher Education) can reclaim the VAT and this is usually part of the saving for the cyclist - a few (very tight and borderline dishonest IMHO) employers keep the VAT for themselves.

The schemes run by Cyclescheme, Wiggle, Evans and Halfords provide most of the documentation and I think it is a poor excuse for employers to say it's too much administration!

Of course there is no need to sign up to one of the above schemes, employers can make their own arrangements within the rules, but the schemes do save a lot of hassle.

One downside is that some (by no means all) bike vendors either remove discounts or apply an admin charge on bikes through one of these schemes (Spa Cyscles for example, quoted me an extra 12.5% on top of their admitedly well discounted prices).

Another issue is that we (bike users at my workplace) urged our employer NOT to sign up with Halfords, so they went with Cyclescheme, but I had considered a Planet X at one point and they deal only with Halfords (who undertake to supply virtually any bike). But on balance I guess Cyclescheme gives the best choice of LBS's to use.

Sporty Stu

Thanks for the info Kema!

There is also a savings calculator as well as some really useful information about how the scheme works here:

www.cyclesolutions.co.uk

www.dft.gov.uk/pgr/sustainable/cycling/ ... mentat5732

mortuk2k

RufusA wrote:

A few words of caution.

1) It only is feasible if your employer embraces the scheme - some people have found their employers are reluctant.

2) You are NOT buying a bike at a discount. Your employer buys a bike, you then rent the bike off your employer at an exhorbitant rate from your gross salary, and at the end of a set period you hope beyond all hopes that your employer will let you buy the bike off them for a pepercorn price.

I agree with your first point. But couldn't disagree more with your second, I think it's overly negative. Unless I've missed the tales of woe from victims of less scrupulous employers? In which case I would really like to see the details.

I am on my 3rd bike under the scheme and I've neither experienced what you say myself or heard of it from the many people I've helped get on the scheme.

ScottDougall

the too much admin thing is a pile of crap

I got my boss to agree to let me administer this scheme at work and the only faff I have seen is getting him to sign the contract.

Thats it - there is nothing else for him to do...

I filled in a short form on the site to start to process off this took maybe - 3 minutes max

This is as far as I have got but its not an admin heavy scheme at all.

avdave

Complicated isn't it. Zero rate bikes for VAT, everyone can benefit without all the admin and without needing a willing employer. VAT controlled by Europe? No problem zero rate them across the whole of the EEC. And then the European Commission can start to look at price fixing by bike manufacturers. Funny how this years bike sells for the same at every outlet, didn't that used to happen with cars and books? What other things are still protected from competition?

RufusA

mortuk2k wrote:

I agree with your first point. But couldn't disagree more with your second, I think it's overly negative. Unless I've missed the tales of woe from victims of less scrupulous employers? In which case I would really like to see the details.

I'm not saying that is how it in effect works - that is how the scheme is *designed* to work!

The employer does buy and own the bike - it lends it to you for a year. You in return pay for the FULL value of the bike in rent from your gross salary over that year.

There can be no guarantee or offer of purchasing the bike whilst renting off your employer otherwise it becomes a hire purchase agreement and you lose the tax benefits and your employer needs another type of credit license.

At the end of the period your employer can offer to sell you the bike, if they choose - remember no guarantees. But this according to the HMRC must be at "market value", anyone telling you this is only 5% of the purchase price will IMHO have difficulties if HMRC decided to investigate.

If as the HMRC wish, you pay the *real* market value, say 50% of the original purchase price you end up effectively paying twice for the same bike, and losing a bit of pension etc. in the process. Not to mention the restictions and loss of discount you get if your source a bike through a scheme provider.

In reality cycle schemes operate flawlessly for thousands, and the HMRC will probably turn a blind eye to the 5%. There have been tales on this forum of people who have had employers charge them the VAT inclusive price of the bike. Some have even charged an extra admin fees. No-one AFAIK have been refused the option of buying the bike at the end of the period.

I'm not trying to put people off joining Cycle schemes and buying bikes. I think it's a great way of getting more people to cycle. BUT they need to be aware that it's all based on trust, it's a fudge, it's a gamble, and they must hope the taxman won't start asking too many questions!

IMHO the Government have made a complete b@lls up of implementing it, and it could have been so much simpler and cheaper if they hadn't tried to shoe-horn the Home Computer Initiative in to a cycle scheme where it doesn't fit! It most benefits those who are in a stable job paying higher rate tax - largely those who need the scheme the least.

Make bikes zero rated for VAT. Allow employers to capitalise the cost fully in the first year. Allow employers to give employees a cycle in leu of gross salary. Job done!

Renting a computer over 3 years, and it being worth 5% of the original price works with fast depreciating IT equipment.
Renting a cycle over 1 year, and it being worth 5% of the original price is demonstratably wrong. Yet if it's worth more, the figures no longer add up!

Rufus.

Sporty Stu

Hi Rufus - thanks for all the useful info!
I'm no tax expert but after researching the scheme online it seems to me that an employee signs a contract with their employer stating that the employer will sell the bike to the employee at the end of the hire period for a nominal sum (usuually 5-10%) of the bikes orignal value.

I've got 2 questions...
i) Am I right in thinking that if they then refuse to sell the bike they are breaching the contract (don't know why they would and what they would do with a bike you've been riding for year anyway)
ii) If you agree a value to buy your bike from your employer are you breaching any of the DfT tax rules for the scheme?

Cheers - Stu

alfablue

Sporty Stu wrote:

Hi Rufus - thanks for all the useful info!
I'm no tax expert but after researching the scheme online it seems to me that an employee signs a contract with their employer stating that the employer will sell the bike to the employee at the end of the hire period for a nominal sum (usuually 5-10%) of the bikes orignal value.

I've got 2 questions...
i) Am I right in thinking that if they then refuse to sell the bike they are breaching the contract (don't know why they would and what they would do with a bike you've been riding for year anyway)

Cheers - Stu

I think the contract cannot include an agreement to sell the bike, doing so would make it a hire purchase agreement, not a hire agreement, and would therefore not benefit from the tax breaks.

It is an act of (good) faith that the bike will be sold on - realistically most, if not all employers would have no interest in owning a fleet of bikes.

from the www.cyclescheme.co.uk FAQ's:

It's your employer's choice whether they opt to sell you the bike at the end of the hire period. If you choose to become the owner of the goods, you may be offered the opportunity to pay the Fair Market Value for them from your net salary, equal to around 5% of the original value. If you choose not to buy the bike you will be charged the equivalent of the Fair Market Value to dispose of the goods, probably to a charity.

The fair market value cannot be stated before or during the scheme as this could be considered a benefit in kind as hire-purchase does not warrant any tax-relief.

Sporty Stu

alfablue wrote:

I think the contract cannot include an agreement to sell the bike, doing so would make it a hire purchase agreement, not a hire agreement, and would therefore not benefit from the tax breaks.

After looking on another cycling forum I found this post buy someone who work for HMRC and has bought a bike himself through the scheme...

''I work for HMRC

As I said in my previous post, you do indeed lease the bike from your company and at the end you have to buy the bike from the company. You should exepct to pay somehwere between 2% - 5% of the cycle value. My lease contract with the company offers me the option of buying the bike at the end of the lease period.

The cycle to work scheme has been running for 9 years or so now and I've not heard one negative report as yet.''

alfablue

I am sure the HMCR is right that there are no negative reports, however here is a quote from the DfT site,

There should be no automatic entitlement for the employee to take ownership of the cycle and cyclists' safety equipment at the end of the loan period. If the loan agreement (technically a hire agreement under the Consumer Credit Act 1974 (CCA)) allows for ownership of the cycle and cyclists' safety equipment to pass to the employee upon the exercise of an option, the doing of any other specified act by either party to the agreement, or the happening of any other specified event, the resulting agreement is likely to be hire purchase in which case the tax exemption available for a loaned cycle may not be available.

I must admit I am having trouble interpreting the statement: "the doing of any other specified act by either party to the agreement, or the happening of any other specified event

RufusA

alfablue wrote:

I must admit I am having trouble interpreting the statement: "the doing of any other specified act by either party to the agreement, or the happening of any other specified event

You need to read it as:

...equipment to pass to the employee upon:
the exercise of an option,
the doing of any other specified act by either party to the agreement,
or the happening of any other specified event

an option - you have the chance of buying the bike.
other specified act - if you work 20 hours overtime but don't claim you get the bike.
other specified event - on your next birthday we will give you the bike.

HTH - Rufus.

alfablue

Thanks Rufus

Right, so, there must be no indication in the agreement at all that the bike will pass to the ownership of the employee.

Sporty Stu

Just found this... amaing to think what a little 'pedal power' could acheive!

Cycling England analysed the carbon commutes of the 6.6 million employees who use cars or buses to travel less than five miles to work, as part of its campaign to promote Bike Week (16-24 June).

Staggeringly, if each of these target commuters were to cycle during the five working days of Bike Week, they would save over 44,000 tonnes of CO2, pocketing around £61 million in the process through economising on fuel and fare costs.

A week’s pedal power would save the equivalent carbon generated by more than 102 million kWh of electricity. To put this into perspective, over six million people freewheeling during just one week saves enough CO2 to offset the domestic emissions generated by heating more than 16,700 houses for a year balance out the emissions generated by more than 205 million standard light bulbs in just one day

At the moment, 78 per cent of all commuters drive or are driven to work, generating a weekly CO2 footprint of more than 341,000 tonnes. However, Cycling England predicts that more “carbon-conscious commuters” will begin to consider cycling to work, with many testing out their wheels over Bike Week. 600,000 people already cycle to work, saving a weekly tally of almost 5,250 tonnes.

More than 6.6 million people make work-based journeys of under five miles, and these short-distance commuters are the target for the government organisation’s new campaign, as their journeys could most easily be switched from car/bus to bicycle, saving them almost £500 a year in the process.