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Cycle to Work Scheme "overheads"

Special KSpecial K Posts: 449
edited February 2008 in Campaign
Can someone with the right experience tell me how much overhead is involved in

a) setting up the Cycle to work scheme which allows employees to buy new bikes net of tax.

b) administering the scheme on an annual basis

...we are talking probably tens of people taking up the offer out of a local contingent of maybe 400.

My company has quoted "overheads" as being the reason why they will not do this and I wanted to put this question to the forum to be validated.

(They are usually not stingy; we have grants for PCs, professional journals, childcare vouchers, gym membership subsidy etc, so I find their reluctance curious).
"There are holes in the sky,
Where the rain gets in.
But they're ever so small
That's why rain is thin. " Spike Milligan

Posts

  • alfabluealfablue Posts: 8,497
    The scheme should work much like the PC purchase scheme, same idea of salary sacrifice. Setting up costs should be minimal especially if using Cyclescheme, Wiggle, Evans, Halfords schemes etc, as they have all the paperwork. The main issue is arranging the payroll issues for salary sacrifice. There is also a saving of employers national insurance contributions (and pensions if applicable), so these would offset some of the running costs, maybe even all!

    I think that even if they are not being stinghy, they are probably ill-informed. I would show them the paperwok / service that wiggle supply (you can download it all) or Cyclescheme. Our place uses cyclescheme, and there is even a dedicated page on the cyclescheme site for us, we fill in an online form, work sends out an agreement form to sign, send it back, then get the voucher.

    I would also tell them how many organisations, large and small, offer this, and how they should really be addressing this under a green transport plan, if they are an environmentally responsible company. It is a very cheap and easy way for them to get some environmental credibility, and to give the workforce a cared-for feelgood factor!
  • breszhbreszh Posts: 185
    Hi Special K,

    I'm sorry I can't directly answer your question but I can tell you what my employer has done to help with whatever costs there are.

    They have basically not passed on the VAT saving to us, choosing instead to put that towards the cost of running the scheme. maybe this is an angle you could use to sell it to them?

    I'm taking up the scheme this year, going to get myself a mountain bike, just for a change. When I looked into using the scheme the company were just saying how well they were doing, how they've got $16billion in the bank, then I find out the lousy £75 VAT won't be a saving to me. tsk tsk.

    Cheers

    Mike
  • alfabluealfablue Posts: 8,497
    breszh wrote:
    They have basically not passed on the VAT saving to us, choosing instead to put that towards the cost of running the scheme. maybe this is an angle you could use to sell it to them?
    I think this is a bit tight, and is bordering on the immoral IMHO. Why should an employee be paying VAT that is never passed on to the Revenue and Customs and the employer profiteer out of the scheme? If it is not illegal, it should be. They already save in NI and pension contributions, and the schemes are very simple.

    My own employer can't reclaim the VAT as it is a university, but I can't believe they would have gone down this road anyway, being a decent employer. I would recommend that you don't suggest this.
  • breszhbreszh Posts: 185
    alfablue wrote:
    I think this is a bit tight, and is bordering on the immoral IMHO. Why should an employee be paying VAT that is never passed on to the Revenue and Customs and the employer profiteer out of the scheme? If it is not illegal, it should be. They already save in NI and pension contributions, and the schemes are very simple.

    My own employer can't reclaim the VAT as it is a university, but I can't believe they would have gone down this road anyway, being a decent employer. I would recommend that you don't suggest this.

    I agree with your view of the VAT situation, its a bit sick, especially given the company I work for is trying to boast about its green credentials! I just thought it might be an encouragement if they really were against implementing the scheme, 30 odd % off a bike is better than nothing, but 40 odd % would be better!
  • alfabluealfablue Posts: 8,497
    Yes I agree, even without the VAT saving I can get a £1000 bike for £590 (a bit unfairly the saving is more for higher rate tax payers), still an attractive proposition.
  • breszh wrote:
    alfablue wrote:
    I think this is a bit tight, and is bordering on the immoral IMHO. Why should an employee be paying VAT that is never passed on to the Revenue and Customs and the employer profiteer out of the scheme? If it is not illegal, it should be. They already save in NI and pension contributions, and the schemes are very simple.

    My own employer can't reclaim the VAT as it is a university, but I can't believe they would have gone down this road anyway, being a decent employer. I would recommend that you don't suggest this.

    I agree with your view of the VAT situation, its a bit sick, especially given the company I work for is trying to boast about its green credentials! I just thought it might be an encouragement if they really were against implementing the scheme, 30 odd % off a bike is better than nothing, but 40 odd % would be better!

    do you work in lodnon for a global bank by any chance???
    "There are holes in the sky,
    Where the rain gets in.
    But they're ever so small
    That's why rain is thin. " Spike Milligan
  • Special K wrote:
    Can someone with the right experience tell me how much overhead is involved in

    a) setting up the Cycle to work scheme which allows employees to buy new bikes net of tax.

    b) administering the scheme on an annual basis

    ...we are talking probably tens of people taking up the offer out of a local contingent of maybe 400.

    My company has quoted "overheads" as being the reason why they will not do this and I wanted to put this question to the forum to be validated.

    (They are usually not stingy; we have grants for PCs, professional journals, childcare vouchers, gym membership subsidy etc, so I find their reluctance curious).

    (a) the set up of the scheme involves

    (1) completion of a pre-contract information form
    (2) completion of hire agreement

    a competent administrator would not require more than 5 minutes to do this

    (b) administration on an annual basis is basically one salary adjustment per year.

    time involved for the payroll dept around 2 minutes

    So there are no overheads.

    Cheers CTW
  • breszh wrote:
    Hi Special K,

    I'm sorry I can't directly answer your question but I can tell you what my employer has done to help with whatever costs there are.

    They have basically not passed on the VAT saving to us, choosing instead to put that towards the cost of running the scheme. maybe this is an angle you could use to sell it to them?

    I'm taking up the scheme this year, going to get myself a mountain bike, just for a change. When I looked into using the scheme the company were just saying how well they were doing, how they've got $16billion in the bank, then I find out the lousy £75 VAT won't be a saving to me. tsk tsk.

    Cheers

    Mike

    Who is your employer?
  • david2david2 Posts: 5,200
    The employer has to purchase the bikes and then owns them. this is capital expense. If 100 people buy bikes at £300 each you can work out the cost to the employer yourself. Of course the outlay could be much greater since I believe you can spend up to £2000 on this scheme. The employer then has all that cash tied up in rapidly depreciating assets.

    Granted the employer gains in the long term with reduced NI contributions but it could still cost quite a bit to purchase a whole bunch of bikes in the first place.

    I don't understand why the scheme has to work by the employer buying the bikes. Crazy rules guaranteed to reduce take up of the scheme.
  • alfabluealfablue Posts: 8,497
    david2 wrote:
    The employer has to purchase the bikes and then owns them. this is capital expense. If 100 people buy bikes at £300 each you can work out the cost to the employer yourself. Of course the outlay could be much greater since I believe you can spend up to £2000 on this scheme. The employer then has all that cash tied up in rapidly depreciating assets.

    Granted the employer gains in the long term with reduced NI contributions but it could still cost quite a bit to purchase a whole bunch of bikes in the first place.

    I don't understand why the scheme has to work by the employer buying the bikes. Crazy rules guaranteed to reduce take up of the scheme.

    The limit is £1000 (though in theory bikes beyond £1000 can be bought with employee topups, if the employer has the right credit licence, but this has ceased of late because of concerns about the tax and legal status of dual ownership of the bikes).

    I guess this scheme was modelled on the computers scheme of a few years back, it exploits existing tax laws without making new ones.
  • david2 wrote:
    The employer has to purchase the bikes and then owns them. this is capital expense. If 100 people buy bikes at £300 each you can work out the cost to the employer yourself. Of course the outlay could be much greater since I believe you can spend up to £2000 on this scheme. The employer then has all that cash tied up in rapidly depreciating assets.

    Granted the employer gains in the long term with reduced NI contributions but it could still cost quite a bit to purchase a whole bunch of bikes in the first place.

    I don't understand why the scheme has to work by the employer buying the bikes. Crazy rules guaranteed to reduce take up of the scheme.

    If the employer was to buy the bikes from a supplier who offered finance there would be no capital outlay at all. Wiggle to give one example provide 12 months free finance. If the repayment schedule is then set at 12 months the employer will have recovered the cost in time to pay the supplier.

    There need therefor be no cash tied up (in rapidly depreciating??? assets)
  • david2david2 Posts: 5,200
    I think its £2000 every 2 years

    If you want the company to let you have the bike after two years you'd better hope they depreciate it in that time - thats quite rapid.

    Anyway bikes are rapidly depreciating. Have you ever tried to sell a year old bike? You'll be lucky to get 50% of the orignal purchase price

    Still struggling to get an employer to offer this benefit
  • alfabluealfablue Posts: 8,497
    david2 wrote:
    I think its £2000 every 2 years

    If you want the company to let you have the bike after two years you'd better hope they depreciate it in that time - thats quite rapid.

    Anyway bikes are rapidly depreciating. Have you ever tried to sell a year old bike? You'll be lucky to get 50% of the orignal purchase price

    Still struggling to get an employer to offer this benefit

    I am not sure of the relevance of the fact that it is a rapidly depreciating asset when the employees "rental" payments probably keep up with or overtake the progress of that depreciation.

    The "norm" is to charge 3% or 5% of the original cost to transfer ownership at the end of the hire period, the vast majority of employers using the scheme are doing this. The problem is they are not allowed to agree this before the end of the hire period or it becomes Hire Purchase, and then doesn't attract the tax break. There is a certain amount of trust involved, but most employers are playing this with a "straight bat", as they see mutual benefits of giving employees a benefit that costs the employer little or nothing, whilst enhancing their green transport credentials. I think there is nothing to fear unless you work for absolute rogues!!!

    By the way, although technically the final price to purchase for the employee should be based on market value so as not to attract tax as a benefit, HMR&C are turning a slightly blind eye to this minor detail to permit their own scheme to function.

    I say, lets have less paranoia and more bikes!
  • top_bhoytop_bhoy Posts: 1,421
    Here in Oz, for laptops, you can do what is known as salary sacrificing. It would appear to work in much the same way as the 'cycle to work' scheme but also appearing easier to administer. With this scheme, at some point during the tax year, the employee purchases the PC from any shop, online retailer, etc , gets a GST(ie vat) receipt, hands it into the finance office at work and in the next months salary the cost of the item is refunded to the employee.

    From theronin, during the course of the tax year, the cost of the laptop is taken from the employee (less the tax element) in monthly installments. It is obviously better to purchase at the start of the tax year as you then have 11 installments to spread the cost over.. Payroll only need to make a minor adjustment to account for this - not a big deal.

    Why the similar 'cycle to work' scheme needs a middleman to organise it I don't know!
  • The trust thing that somebody pointed out is all important.

    Lots of companies are probably a bit reluctant to enter into a contract with no final settlement figures agreed. It's the one thing that puts me off.
    I don't want to enter into an agreement where I pay a certain amount of money every month with no guarantee that I get a cheap bike at the end of it.

    In all probability, the employee will get a bike at a rough saving of 30%, but if the employer makes that clear at the beginning then they are offering a taxable benefit and the scheme can fall foul of the law.
    That's my reading of the situation and it all seems a bit woolly to me.

    Suppliers seem to insist that the bike is sold at RRP too, so the saving might not be as great as you would hope anyway.

    It's a scheme that has great potential, but doesn't quite make it.

    The oddest bit, from what I can make out, is that people who earn most get the biggest saving on the bike. Your boss, who earns more than you, gets the same bike cheaper. :?

    Why not just make bikes VAT free like certain other health related products?
    Knock off the sort of discount you would normally expect from a retailer and it ends up at about the same price as a Bike2Work scheme would expect to achieve, but without the paperwork and fangled tax mechanisms.
  • alfablue wrote:
    david2 wrote:
    The employer has to purchase the bikes and then owns them. this is capital expense. If 100 people buy bikes at £300 each you can work out the cost to the employer yourself. Of course the outlay could be much greater since I believe you can spend up to £2000 on this scheme. The employer then has all that cash tied up in rapidly depreciating assets.

    Granted the employer gains in the long term with reduced NI contributions but it could still cost quite a bit to purchase a whole bunch of bikes in the first place.

    I don't understand why the scheme has to work by the employer buying the bikes. Crazy rules guaranteed to reduce take up of the scheme.

    The limit is £1000 (though in theory bikes beyond £1000 can be bought with employee topups, if the employer has the right credit licence, but this has ceased of late because of concerns about the tax and legal status of dual ownership of the bikes).

    I guess this scheme was modelled on the computers scheme of a few years back, it exploits existing tax laws without making new ones.

    If an employer has a credit license there is no limit on the value of the bike that can be purchased through the scheme. Thus there is no need for employee topups and therefore there is no duel ownership.
  • alfabluealfablue Posts: 8,497
    Top_Bhoy wrote:
    Why the similar 'cycle to work' scheme needs a middleman to organise it I don't know!
    There is no obligation to use a middleman to do this in the UK either but Cyclescheme and retailers like Evans, Halfords and Wiggle have provided the service which most employers seem to use rather than making their own arrangements probably because it takes away a small amount of administration from them. Some employers have made their own in-house arrangements.
  • top_bhoytop_bhoy Posts: 1,421
    alfablue wrote:
    Top_Bhoy wrote:
    Why the similar 'cycle to work' scheme needs a middleman to organise it I don't know!
    There is no obligation to use a middleman to do this in the UK either but Cyclescheme and retailers like Evans, Halfords and Wiggle have provided the service which most employers seem to use rather than making their own arrangements probably because it takes away a small amount of administration from them. Some employers have made their own in-house arrangements.

    Agreed, not all use a 3rd party - but when it is an arrangement between the taxman, a company and an employee I'm still a bit perplexed why a 3rd party has to be involved at all as ultimately it is still down to the company payroll administrators to adjust the tax contributions of the employee. What role does the likes of Halfords et al play? Seems like another layer of paperwork to me.
  • alfabluealfablue Posts: 8,497
    I think the retailers have just found a way to boost sales, and to be honest, the marketing they have done has probably brought the scheme to the attention of far more people than would otherwise have happened. I think the potential for the scheme existed for quite a while before it came to wider attention, and I think it is since the emergence of Cyclescheme and retailer schemes that it has taken off. I don't think there is a great deal of admin to do whether done in house or through a third party, but I am sure uptake would be far less if such retailers weren't involved. I think the retailer schemes just offer reassurance to perhaps slightly sceptical employers.

    For my part, my employer has signed up to Cyclescheme, there is a web page on our university web site that links to Cyclescheme. The instructions are: go to your chosen bike shop and get a quote for what you want and make your order, fill in the online form, the employer sends a printed agreement for you to sign, return the form and a collection note is issued, take to bike shop and collect bike. It is hardly arduous!

    I don't think there is really an extra level of paperwork either, the chances are the same amount would be required from the employees and employers perspective using either mode. Any extra level is really between retailer and Cyclescheme, if that scheme is used. or between Halfords and where they source the bike. For Wiggle, Evans, EBC etc, they run the scheme and supply the bike, so no extra paperwork.

    Either in house or using a retailer scheme is fine by me, there would be slightly more flexibility doing it entirely in-house, but there are few disadvantages to the retailer schemes, there must be many thousand happy bike owning employees now.
  • Top_Bhoy wrote:
    alfablue wrote:
    Top_Bhoy wrote:
    Why the similar 'cycle to work' scheme needs a middleman to organise it I don't know!
    There is no obligation to use a middleman to do this in the UK either but Cyclescheme and retailers like Evans, Halfords and Wiggle have provided the service which most employers seem to use rather than making their own arrangements probably because it takes away a small amount of administration from them. Some employers have made their own in-house arrangements.

    Agreed, not all use a 3rd party - but when it is an arrangement between the taxman, a company and an employee I'm still a bit perplexed why a 3rd party has to be involved at all as ultimately it is still down to the company payroll administrators to adjust the tax contributions of the employee. What role does the likes of Halfords et al play? Seems like another layer of paperwork to me.

    The (admin) role the likes of Halfords play is something like as follows:

    (1) calculation of salary sacrifice based upon the order

    For this they will use an "order form" which will split the costs between those which have VAT and those which don't (helmets) and apply the hire period which is the choice of the employer

    (2) provide a Pre-Contract Information form

    This is a requirement (under the Consumer Credit Act) which is designed to cover the rights of the employee - i.e. making sure they understand the agreement they are entering into

    (3) provide a Hire Agreement (agreement between employer and employee for the provision of a bike and cycle accessories)

    This hire agreement sets out the terms of the arrangement and the salary sacrifice.

    There is nothing to stop an employer preparing (2) & (3) themselves but if Halfords Evans Wiggle etc are willing to do it free of charge why bother.

    Independent suppliers or local bike shops use a middleman like Cyclescheme to do the administration but they charge the shops 10% so the incentive for those shops to market the scheme is not great.

    In Edinburgh we do not like to see the local shops lose out as employers such as the Royal Bank of Scotland offer the scheme but their employees are forced to buy the bikes through Halfords. People go and test the bike they want at their local shop and then buy it somewhere else.

    We have offered bike shops in our area to do all the above and charge only nominal amount to cover the actual cost of our admin (which we can ensure is not more than 1% or 2%)

    Cheers
  • alfabluealfablue Posts: 8,497
    Yes, the Cyclescheme 10% charge to the LBS's does have a knock-on effect, as LBS's are unlikely to offer discounted prices for such purchases. For example, I enquired at Spa Cycles and they add 12.5% to their (admittedly excellent) web prices for such orders. (Only problem was this took my prospective Ultra Galaxy to just over the £1000 limit, I would have gone for it but was not allowed). I even went to Avon Valley Cyclery, which as far as I know is owned by the guy that set up and runs Cyclescheme, and they would only sell at full price. (I could only get a Super Galaxy for my £1000). I guess it is fair enough, I presume this is Cyclescheme's only income, whether the convenience they offer is worth that slight penalty is for individuals to decide.

    Personally I was pleased my employer chose Cyclescheme over Halfords as I anticipated employees would be more likely to get the best bike for their needs, that they would receive a more competent bike build and after sales service, and also it supports the LBS's. These benefits are surely worth the premium.

    I am impressed with your offer to LBS's Cycletowork, is it time to reveal more about your involvement / company?
  • alfablue wrote:
    Yes, the Cyclescheme 10% charge to the LBS's does have a knock-on effect, as LBS's are unlikely to offer discounted prices for such purchases. For example, I enquired at Spa Cycles and they add 12.5% to their (admittedly excellent) web prices for such orders. (Only problem was this took my prospective Ultra Galaxy to just over the £1000 limit, I would have gone for it but was not allowed). I even went to Avon Valley Cyclery, which as far as I know is owned by the guy that set up and runs Cyclescheme, and they would only sell at full price. (I could only get a Super Galaxy for my £1000). I guess it is fair enough, I presume this is Cyclescheme's only income, whether the convenience they offer is worth that slight penalty is for individuals to decide.

    Personally I was pleased my employer chose Cyclescheme over Halfords as I anticipated employees would be more likely to get the best bike for their needs, that they would receive a more competent bike build and after sales service, and also it supports the LBS's. These benefits are surely worth the premium.

    I am impressed with your offer to LBS's Cycletowork, is it time to reveal more about your involvement / company?

    OK cheers for that!

    I have a small accountancy firm in Edinburgh and myself and the other partner are cyclists.

    I think that the cycletowork scheme is an absolutely brilliant initiative but with a few flaws. It was my intention to try and iron out those flaws where possible to ensure that

    (1) neither companies or their employees have any concerns which prevented them from participation

    (2) people should have full access to the market and be able to buy the bike they want from any shop

    (3) discounts should be available to buyers and not taken up by middlemen or retail chains based upon administration charges. I think there is a culture that because people are saving money through the scheme discounting need not apply.

    To counter (1) above we can offer advice. The main concerns are on the fact that the transfer value cannot form part of the contract. I believe this can be countered if am employer has a "policy" for example that bikes are depreciated over 12 months and thus have a zero value after that time. Similar policies can be in place to cover any problems should people leave their jobs during the hire period - where no-one loses out.

    To help ensure number (2) we need to help reduce the amounts charged to LBS's by administrators. Their incentive to market the scheme or be involved at all is greatly reduced if they have to pay 10% of a bike sale to a third party.

    To help with number (3) clearly LBS's are not in good position to offer discount if they are already giving away 10%. For the chains who administrate the scheme to be honest I don't know if they offer less discount because it is being bought through cycletowork. However an individual and/or an employer should be free to negotiate a discount irrespective of whether the purchase is through cycletowork. If Evans for example (or anybody else) were to claim they could not discount the buyer should be able to say - OK give me the discount and forget the admin and I'll get someone else to do it. If a company is buying a number of bikes then retailers should be offering very large discounts.

    Cheers
  • alfabluealfablue Posts: 8,497
    This is commendable, Cycletowork - power to your elbow, are you making any inroads with this?

    On discounts I have heard anecdotally that Evans sell at the advertised price even when using their scheme, as do Wiggle. I understand Halfords would for their own stocked items, but not when sourced from elsewhere. Not sure about EBC, but nothing on their web site suggests otherwise.
  • alfablue wrote:
    This is commendable, Cycletowork - power to your elbow, are you making any inroads with this?

    On discounts I have heard anecdotally that Evans sell at the advertised price even when using their scheme, as do Wiggle. I understand Halfords would for their own stocked items, but not when sourced from elsewhere. Not sure about EBC, but nothing on their web site suggests otherwise.

    I am disappointed to say very little. We produced a pack very similar to everybody elses with the - How does it work?, Employee Information, Employer Information, Order Form plus sample Pre Contracts and Hire Agreements and sent it to the majority of independent bike shops in Scotland. We offered to produce at cost packs with their logo and pictures and as yet all but one have not replied.

    I don't know why this is to be honest - I guess they don't really see this market as being for them. Meanwhile EBS, Evans (Glasgow) and Halfords are making millions!

    I would extend the offer nationally (UK) but if I have 3 bike shops within a mile who do not respond Its unlikely I will get much response from further a field.

    I have changed track a little and am now trying to promote to employers that staff (especially younger ones) demand they are "green" and this scheme is an easy step to being a green employer while saving money, having a healthy workforce etc etc etc

    cheers
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