Cycle to Work Scheme problems
16simon
Posts: 154
Hi everyone, I've asked my employer to implement the Cycle to Work scheme, they were very receptive and all was going well until we hit a stumbling block. They are worried about the financial implications of the scheme - for example, if an employee leaves their employment or decides that they don't want the bike before before they have paid in full for it, will the employer run the risk of being left with unwanted bikes?
Is this correct? Is there any way round this? I'd be grateful for any help or advice about this; the sooner that the scheme is in place, the sooner I can get a new TT bike....
Is this correct? Is there any way round this? I'd be grateful for any help or advice about this; the sooner that the scheme is in place, the sooner I can get a new TT bike....
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Comments
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Simple answer is possibly!
In nearly all of the schemes the employee agrees to rent the bike for 12 months. If they leave before the 12 months are up, they still need to pay their contracted rental. Any outstanding amount i.e. a remaining 6 months, would get deducted from their final salary.
In any of these schemes the employer owns the bike so at the end of a period the employer is left with an "unwanted" bike. Regardless of whether the employee still works for the company, the employer needs to dispose of the bike. Usually to the employee (or ex-employee) and a fair market value.
It may be worth looking at some of the scheme providers and read their FAQs and contracts. You may decide not to use any of them, but it will give you an idea of some of the costs, contract terms and how to handle the pitfalls.
HTH - Rufus.0 -
Check out the FAQs on the Cyclescheme website - if they go with this scheme, Cyclescheme will take unwanted bikes off their hands. If an employee leaves before the emds of the payment period (usually 12 - 18 months), the balance outstanding is deductable from their final salary payment, I think. The risk for the employer is if a person leaves and their final salary payment is less than the amount outstanding - employer would have to get a direct payment from (ex) employee which might result in having to sue them if they don't pay.0
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I've had another look at the cyclescheme FAQ, I can't find any reference to them buying up any unwanted bikes at the end of the salary sacrifice period, and this is the main sticking point with my employer. Can you point me to anything that deals with this?0
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16simon wrote:I've had another look at the cyclescheme FAQ, I can't find any reference to them buying up any unwanted bikes at the end of the salary sacrifice period, and this is the main sticking point with my employer. Can you point me to anything that deals with this?
This is the standard clause to cover where people move jobs.
Termination fee
If you cease employment with the employer this hire agreement will be terminated.You will be
required to pay a termination fee of an amount not exceeding the outstanding monthly hire
payments and calculated as set out in in the employee terms and conditions on the hire
agreement.The termination fee will be collected by the employer from your outstanding salary
payments . If your outstanding liabilities exceed your outstanding salary payments the employer will require settlement of your outstanding liabilities.
Will you cycle to work on a TT bike?0 -
"I've had another look at the cyclescheme FAQ, I can't find any reference to them buying up any unwanted bikes at the end of the salary sacrifice period, and this is the main sticking point with my employer. Can you point me to anything that deals with this?"
It is in the employer contract which you can download & view if you register on the Cyclescheme site (no obligation atthat stage)0 -
AFAIK they won't BUY any unwanted bikes.
They will however arrange for any unwanted bikes to be collected, and disposed of, with Cyclescheme keeping any proceeds from the disposal.
But then with the bike worth only 5% of the original purchase price after 1 year, who's going to quibble about cyclescheme keeping the money! :roll:
Rufus.0 -
Thanks again, I've printed off the relevant documents, hopefully should do the trick.
Cycle to work on a TT bike? Well, it gets me there fast ;-)0 -
If you want more information on Cycling to work it's all available here free: www.cycletoworknow.com and you can implement a scheme quickly and easily.
The big difference here is that the effect of capital allowances for the employer is explained and that should make it compelling for them.
The answer to your question is that if an employee leaves the scheme they will be required to pay the outstanding balance of the hire agreement from their net salary. In which case they will own the bike, so the question of the employer getting left with unwanted bikes shouldn't arise.
It's condition of the agreement that it's non cancellable by either party unless the contract of employment is cancelled as above.
Hope this helps.
RobWWW.CycletoWorkNow.Com makes cycle to work easy, fast and simple!0 -
robhowes wrote:The big difference here is that the effect of capital allowances for the employer is explained and that should make it compelling for them.
Interesting site, but I would recommend that someone looks at the Employers Finacials page as it is at best confusing, and IMHO possibly misleading.
You can't treat the capital allowance as "money in" that is completely false. Also the second year allowance is only claimable dependant on where the purchase was in relation to the year end.
In reality employer spends £841 (net of VAT) to acquire an asset (their cash on hand falls by that amount). The employee accepts a salary sacrifice, hence their costs and hence profit goes up. Yet in the first year they can only offset 40% of the asset cost against their profit. So they end up paying corporation tax on 60% of the value of the bike.
i.e. for an SME they'd pay 22% of 60% of £841 = £111.01. Which is greater than their Class 1 NI savings. This assumes it is an SME and they are making a taxable profit of course!
On disposal the capital allowance evens itself out a little of course!
I also notice that on the Employees "savings" page it doesn't include the cost of buying the bike at the end of the scheme i.e. an estimated additional 5%. Not very significant, but would give a fairer view of the real savings.
Rufus.0 -
robhowes wrote:If you want more information on Cycling to work it's all available here free: www.cycletoworknow.com and you can implement a scheme quickly and easily.
The big difference here is that the effect of capital allowances for the employer is explained and that should make it compelling for them.
The answer to your question is that if an employee leaves the scheme they will be required to pay the outstanding balance of the hire agreement from their net salary. In which case they will own the bike, so the question of the employer getting left with unwanted bikes shouldn't arise.
It's condition of the agreement that it's non cancellable by either party unless the contract of employment is cancelled as above.
Hope this helps.
Rob
Your explanation of capital allowances would indeed be compelling if they were correct.
Your explanation of 1st year capital allowances as "money in" is highly misleading.
The truth is that the savings made by claiming capital allowances merely cancels out the higher tax charge which will arise from the increased profit from lower salary cost,
The employers financial saving is simply (but not insignificantly) saved employer national insurance.0 -
Thanks for the info Rob. I had a look at your scheme, are you just offering Claud Bultler and Dawes? Don't you think that people would be better signing up with one of the other schemes that offers a wider choice of bike?0
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I guess Rob's site is limited by whatever Holcros Cycles is able to supply.
I also note the site uses the full RRP for the bikes to work out the monthly costs.
For example Dawes Giro 500 on CycleToWork is showing as £799 (less VAT/tax savings).
http://www.cycletoworknow.com/cart/deta ... nformation
Direct from Holcros it's £679.99 and you get £60 worth of accessories thrown in!
http://www.holcroscycles.com/catalog/pr ... cts_id=962
So someone is creaming off probably £150 somewhere for "enabling".
If you shopped around you could get what appears to be the same bike for under £500:
http://www.leisurelakesbikes.com/product.aspx?&id=7233
even less if you don't mind an older model:
http://www.ashcycles.com/power/index.ph ... cts_id=221
So after tax savings for a basic rate payer from CycleToWorkNow it would cost you £ 469.85 + £34.04 (5% "FMV") = £503.89.
So your "upto 50% savings" becomes "a few quid more" plus all the hassle factor of involving your employer. The £300 "tax savings" IMHO probably being pocketed by someone other than you or your employer!
Rufus.0 -
RufusA wrote:I guess Rob's site is limited by whatever Holcros Cycles is able to supply.
I also note the site uses the full RRP for the bikes to work out the monthly costs.
For example Dawes Giro 500 on CycleToWork is showing as £799 (less VAT/tax savings).
http://www.cycletoworknow.com/cart/deta ... nformation
Direct from Holcros it's £679.99 and you get £60 worth of accessories thrown in!
http://www.holcroscycles.com/catalog/pr ... cts_id=962
So someone is creaming off probably £150 somewhere for "enabling".
If you shopped around you could get what appears to be the same bike for under £500:
http://www.leisurelakesbikes.com/product.aspx?&id=7233
even less if you don't mind an older model:
http://www.ashcycles.com/power/index.ph ... cts_id=221
So after tax savings for a basic rate payer from CycleToWorkNow it would cost you £ 469.85 + £34.04 (5% "FMV") = £503.89.
So your "upto 50% savings" becomes "a few quid more" plus all the hassle factor of involving your employer. The £300 "tax savings" IMHO probably being pocketed by someone other than you or your employer!
Rufus.
The right to buy a bike from the cheapest source and putting it through the cycletowork scheme are not mutually exclusive. i.e. the bike supplier done not need to be "in" the scheme.
I'm not sure who can pocket the savings. If the scheme is administered properly the employee saves 43% if lower rate tax, 50% if higher rate. The employer makes savings of approx 6%. Everybody wins - taxman looses.0 -
cycletowork wrote:The right to buy a bike from the cheapest source and putting it through the cycletowork scheme are not mutually exclusive. i.e. the bike supplier done not need to be "in" the scheme.
Totally agreed. However sadly there are a number of scheme "providers" who have a restrictive list of suppliers, or who charge the retailer commission/fees (i.e. typically 10%) such that the employer ends up not being able to get the best price possible on the bike.cycletowork wrote:I'm not sure who can pocket the savings.
a) The retailer who charges the employer more than they would normally (outside of a scheme) for a bike.
b) The scheme provider who can charge the retailer a commision for selling a bike (i.e. 10%).
Okay they are not pocketing the savings, but they are hiking their prices knowing that people are getting tax savings from the Government.
It's like being given a 50% off voucher, that can only be used in a shop that charges double what everyone else does!
There are definitely some good guys out there, and there are some schemes (usually retailers own) which pass on the full discount and where there are no intermediatory costs.
However once an employer has signed up to a scheme provider, they are usually stuck with them, as there are restrictive clauses that prevent him from using another provider. i.e. an Employer typically couldn't sign up to Evans, Halfords and CycleScheme then allow his employees to pick the cheapest shop for the bike they wanted.
Almost every week there are posts from people who have got a scheme voucher but can't buy the bike they want, or at the price they want.
Is this really what the Government had in mind when they introduced the tax savings? Actually after the Home Computer Initiative, perhaps it was!
Rufus.0 -
We are in the process of setting up our scheme and it will be in house ie we will not be using a facilitator which is almost unheard off within the public sector. We done this for a few reasons:
1) Using a facilitator doesn't actually save the company much in terms of either time or effort in adminstering the scheme as the employer still must confirm the status of employee as such and then setup the salary sacrafice. The only part the facilitator help with is marketing and the retailer/employee relationship which quite frankly is the least complicated in the whole process. Furthermore as regards marketing the facilitator doesn't usually come themselves to present to the employees it is usually a partnered shop and this can be agreed directly between ourselves and the shops we use so why use a facilitator.
2) The forms used are readily available and can be adapted by an organisation therefore the argument often used is that the facilitator will have ready made employee contracts/employer contracts and hire purchase agreements drawn up. This as I have said can be done very easily in house.
3) Because facilitators have to make a profit or at least break even they therefore have to make a charge for their service. This is done on the retailer and this is reflected in the prices that the retailer will charge ie they will charge full retail costs for bikes that are on sale so no employee cannot benefit from the nice little bargains to be had on last years stock.
4)The employer, irrespective of whether they use a facilitator or not, are still responsible for the conduct of the scheme and as such they should exercise great care in ensuring its properly setup and they can do this by understanding and implementing the scheme themseleves and not relying on the work of others.
5) We wanted to be in control of which shops employees could or could not use and as such we are likely to be more responsive to employee requests than a facilitator would. This is after all is an employee benefit and such it it should benefit the employee as best as can be for that organisation.
We are close now to rolling this out. Just needs final tweaks to the documentation and then for payroll and transport to give us the go-ahead that their systems are place to deal with the requests.
As regards people leaving scheme I can only agree with what others have said. This is a non cancellable hire agreement and as such all costs must be repaid for the full term of the loan period and that is a legally binding requirement on the employee which they will have signed the hire agreement.
As for the organisation being left with a bike they don't want. Well I don't see this as being a problem as the employee will have paid for the bike either through the bull term of the scheme or by leaving early and having paid the remaining balance out then they will no doubt want to pay the small cost to own the bike. If they don't in a very rare situation then it is quite simple the employer still owns the bike and therefore has an asset of which they can dispose of in any way he fills fit ie either skip it, keep it or sell it.0 -
The question from an employee point of view is...
Whether or not I buy the bike at the end of the term, can I re-enter the scheme to buy a better bike due to increased interest and requirement?
I took a low cost option to lower the impact on my monthly salary in regards to supporting my family and hope to bear out teh difference in not using my car. But if I do well and want to continue then a budget bike isn't going to last and require maintence or upgrades if not a full replacement. In regards to this issue can you only enter the scheme once?Don't get too close as a broken tail light often offends...0 -
doyler78 wrote:We are in the process of setting up our scheme and it will be in house ie we will not be using a facilitator which is almost unheard off within the public sector.
I applaud you sir, and your forward thinking organisation. This IMHO is what nearly all organisations should be doing, and you have made some very fine points in your reasoning for not using a faciliator.
Rufus.0 -
Kyrotek wrote:The question from an employee point of view is...
Whether or not I buy the bike at the end of the term, can I re-enter the scheme to buy a better bike due to increased interest and requirement?
AFAIK so long as you meet all the requirements i.e. using the bike mainly for commuting during the loan period, and keeping above minimum wages legislation then there is no tax / legal reasons why you can't keep re-entering the scheme and get a new bike every year.
However some employers will put restrictions on it, so check with your employer, and you may need to time it carefully so you aren't renting two bikes concurrently!
HTH - Rufus.0 -
The text below is from the Department for Transport website:
http://www.dft.gov.uk/pgr/sustainable/c ... ge=1#a1013
8) Can the employee keep the cycle at the end of the loan period?
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.
However, at the end of the loan period, the employer may choose to give the employee the option to purchase the equipment. Typically this would be offered at substantially less than the original value of the equipment, but to prevent a taxable benefit in kind arising as a result of the transfer of ownership the employee must pay the employer the fair market value of the equipment. No tax relief is available to the employee for the purchase so, where the price is recovered from salary, it must be deducted from their net salary. VAT will also be payable on the purchase price by the employee on the supply by the leasing company or the employer as owner of the equipment.
Alternatively, the employer may wish to allow their employees to continue to use the cycles and cyclists' safety equipment you have supplied after the initial loan period has ended, without transferring ownership. As long as the employee continues to meet the conditions of the tax exemption (see section 4 above) no tax charge will arise.
For fuller guidance on transfer of ownership, you may wish to refer to the HMRC website http://www.hmrc.gov.uk/news/comps-and-bikes.htm0 -
doyler78 wrote:We are in the process of setting up our scheme and it will be in house...The forms used are readily available and can be adapted by an organisation.
We'd like to do the same thing for the same reasons, and I'm equally unconvinced of the need for a facilitator. However, it's all been dumped in my lap to set up, particularly as regards choosing a facilitator or showing that we don't need one. I'm not finding it as easy as you suggest to get sample forms or clear guidance, particularly in implementing the contracts and salary sacrifice side of things.
The DfT and HMRC sites aren't really specific enough for our needs, and the only sample documents I can find just cover the employee agreement. Do you have any useful links to available samples, or examples or copies of your set-up and documentation?0 -
HF2300 wrote:doyler78 wrote:We are in the process of setting up our scheme and it will be in house...The forms used are readily available and can be adapted by an organisation.
We'd like to do the same thing for the same reasons, and I'm equally unconvinced of the need for a facilitator. However, it's all been dumped in my lap to set up, particularly as regards choosing a facilitator or showing that we don't need one. I'm not finding it as easy as you suggest to get sample forms or clear guidance, particularly in implementing the contracts and salary sacrifice side of things.
The DfT and HMRC sites aren't really specific enough for our needs, and the only sample documents I can find just cover the employee agreement. Do you have any useful links to available samples, or examples or copies of your set-up and documentation?
You need the following documents:
Order form (which you use to calculate salary sacrifice)
Pre-contract information
Hire agreement
All of these can be downloaded from wiggle.co.uk in .pdf format
If you are not buying from wiggle you will need to amend slightly where wiggle appears on the documents.
There is also quite clear guides on how to calculate salary sacrifice available at wiggle and lots of other sites (google - cycletowork calculator) If stuck ask your wages person or your accountant for (free) advice
ctw0 -
I've just set the scheme up at my work and increased the number of people cycling from 1 (me) to 3, so I'm feeling pretty chuffed. It's certainly the way to do things as our employees have been able to choose whichever bike they fancy (a Planet X and a Condor single speed so far).
I based all of our forms on Planet-X's race2workforms, which seem to cover most eventualities. They need a little rewording to make them specific to your organisation, but apart from that and the ability to adjust someone's salary that's pretty much all you need to implement the scheme.
Copies of the Planet-X forms are here (I couldn't find them on the Planet X site any more):
http://www.on-one-shop.co.uk/?p=767
Good luck!0 -
Cheers guys. I think perhaps I was looking too deep.
The most complicated part seemed to be the payroll / salary sacrifice issues; I was looking for forms to handle that, but in fact it seems that's handled by payroll procedure / software. Calculation of salary sacrifice wasn't a problem, it's obvious enough.
I've since found some HMRC FAQs on salary sacrifice, and a few other bits & pieces to do with childcare vouchers bought the same way, that fill in the gaps.
Thanks again for your input0 -
I am trying to persuade my employer to set up the scheme but they are concerned about the administrative effort required. Can anyone who has set up the scheme list how many man hours or days were required please (and whether a facilitator was used or not ) ?
Thanks0 -
sidepull wrote:Can anyone who has set up the scheme list how many man hours or days were required please (and whether a facilitator was used or not ) ?
Depends entirely on the organisation IMHO.
I can't speak directly from experience as our company decided to dispense with the rental / salary sacrifice aspect of the scheme due to the extra hassle for little benefit.
However I would estimate a minimum of 2 days up front to sort out templates, new contracts etc. If going through a facilitator you'd save a bit of time on wording of rental agreement, but spend extra time reading facilitaor contract. Though TBH there are plenty of examples that can be downloaded and adapted.
You may also need to write a green travel plan which is properly researched could take a week or more.
Then a min of 2 hours per employee to buy bike (either direct or via vouchers), adjust salary issue contract and revised terms of employment.
Then another min of 2 hours at the end to value and dispose of bike, take payment, re-adjust salary etc.
There is also the accounts side of things (fixed asset in register, depreciation, capital allowances) which for a small company could add an extra hour or so. per bike.
If you batch some of these things up then you save time i.e. it doesn't take 5 times as long to issue 5 employee rental contracts as 1.
If you allow employees time off to select bike, collect bike etc. then you need to factor this in.
If you have a bureaucratic employer then you could double, or treble the time by the time you add in HR, legal department, managerial approval, purchase orders, budgets etc.
Plus you should allow some contigency for promotion, dealing with issues, employees leaving before end, bikes getting stolen etc.
All IMHO.
Rufus.0 -
RufusA wrote:sidepull wrote:Can anyone who has set up the scheme list how many man hours or days were required please (and whether a facilitator was used or not ) ?
I can't speak directly from experience as our company decided to dispense with the rental / salary sacrifice aspect of the scheme due to the extra hassle for little benefit.
Rufus.
If your company has dispensed with those part then what does your company provide?0 -
sidepull wrote:I am trying to persuade my employer to set up the scheme but they are concerned about the administrative effort required. Can anyone who has set up the scheme list how many man hours or days were required please (and whether a facilitator was used or not ) ?
Thanks
Don't think man hours or days - minutes are all it needs.
The bike supplier will supply a pack explaining everything and provide all the documents required.
(1) Order Form and Calculation of Salary Sacrifice
This will be completed by the employee at the shop.
Company man minutes NIL
(2) Pre-Contract Information (Form)
Prepared by the employer by copying the details from the order form.
Company man minutes - 5
(3) Hire agreement
Prepared by the employer by copying the details from the Pre-Contract form
Company man minutes - 5
Then make adjustment to employee salary.
Company man minutes - 5
Time per employee = 15 minutes
Hope this helps0 -
Depends entirely on the organisation IMHO.
I can't speak directly from experience as our company decided to dispense with the rental / salary sacrifice aspect of the scheme due to the extra hassle for little benefit.
However I would estimate a minimum of 2 days up front to sort out templates, new contracts etc. If going through a facilitator you'd save a bit of time on wording of rental agreement, but spend extra time reading facilitaor contract. Though TBH there are plenty of examples that can be downloaded and adapted.
You may also need to write a green travel plan which is properly researched could take a week or more.
Then a min of 2 hours per employee to buy bike (either direct or via vouchers), adjust salary issue contract and revised terms of employment.
Then another min of 2 hours at the end to value and dispose of bike, take payment, re-adjust salary etc.
There is also the accounts side of things (fixed asset in register, depreciation, capital allowances) which for a small company could add an extra hour or so. per bike.
If you batch some of these things up then you save time i.e. it doesn't take 5 times as long to issue 5 employee rental contracts as 1.
If you allow employees time off to select bike, collect bike etc. then you need to factor this in.
If you have a bureaucratic employer then you could double, or treble the time by the time you add in HR, legal department, managerial approval, purchase orders, budgets etc.
Plus you should allow some contigency for promotion, dealing with issues, employees leaving before end, bikes getting stolen etc.
All IMHO.
Rufus.[/quote]
This is some kind of joke right?0 -
doyler78 wrote:If your company has dispensed with those part then what does your company provide?
It's a *very* small company you can count the employees on one hand. The company bought some bikes (with input from the employees), and lent them to the employees for their use. Used an LBS and a company credit card!
It works in exactly the same way as other company equipment i.e. laptop computers, mobile phones etc.
At some yet to be determined point the company may replace the bikes, and offer the old ones to the employees to buy at whatever they are currently worth.
No salary sacrifice, but the employees know that because the company has spent a couple of k on bikes, that's a couple of k less in the buget for that year to go on pay rises, bonuses or perks.
FWIW the company has already saved the cost of 1 bike on savings in parking / mileage claims usually incurred visiting client sites.
HTH - Rufus.0 -
cycletowork wrote:Time per employee = 15 minutescycletowork wrote:This is some kind of joke right?
We beg to differ!
Rufus.0
