Quick bike to work question

Matty1235

I'm just in the process of persuading my employer to join the scheme, but has raised a good question.

The Employer buys the bike, i pay them back less approx 41% of selling price over hire period time.

£500 Bike

I pay £295

Spread over 12 months at 24.58.

Then at the end I have to buy it at fair market value

Whats This?

Bike is still worth perhaps £150 so I have to pay this aswell, in that case I don't seem to benefit??

Have I got confused.

Thanks

Massimo

A friend in the Met sent me this, it may be of use... I think most of us on the scheme would come under category 3

Dear all,

I have been watching the HR Forum and then was copied in to some of the NSY user group emails, hence getting your details. I have managed to obtain details of the criteria, etc that Evans will be using to value your R2W pedal cycle. Hopefully, this will allay fears, apart from those of you who have not complied with the scheme and have a sparkling new bike still. Please feel free to pass this on to other R2W users, so that both they and the Evans staff are fully informed about the criteria when valuing your bikes. My valuation is what I was expecting as a nominal fee, so hope this helps. I haven't copied the whole Evans document but the relevant sections, as I don't want to compromise anybody.

Evans are not carrying out these valuations like an insurance valuation, as the bike isn't being looked at to see what it would cost to replace. However, they are, quite rightly judging each bike on its merits and not a "job lot".

None of the below applies to Bromptons as they will be dealt with separately. The document says "Brompton bikes are the only identifiable product that will consistently fetch more. Uniquely, Brompton do not change their range annually, so used ones have a tendency to appear more "current" than other manufacturers' products.............a Brompton can be expected to fetch 10% more than other models. This takes into account that it is unlikely to be outmoded, so a Brompton in excellent condition could be priced to sell at 25% of its original price"

Category 1 - SHOWROOM CONDITION

ie just wheeled out of the showroom and never been used - this has already lost it's manufacturers warranties, as these only apply to the original owner plus it won't be of the spec that the buyer would have had the choice if still in the showroom. The document says "it has generally been the policy when pricing second hand bikes for sale to start at 50% of the original price for a showroom condition machine, descending from there to account for things like wear, demand and how long it has been since the bike was a current model."

Category 2 - EXCELLENT CONDITION

You have had the bike for the last year but only ridden it a couple of times.

The document says "15% of the original price is a likely outcome. Once could offer it up for more but reasonably expect to accept this kind of amount. If the bike is an absolute current model ie. same colour and specification as its unused shop floor equivalent, it could get a bit more, probably 17%"

Category 3 - GOOD CONDITION

A typical commuters bike that is one year old, been used regularly, has been excellently maintained and serviced and possibly parts exchanged, been cleaned and lubricated throughout useage.

The document says "commuter bikes are more likely to be left outside when they are not ridden, and users rarely have the same opportunities for after-ride care as the weekend mountain bike receives. A bike commuted on for a year in good condition can be expected to fetch around 10% of the original shop price. Using the same criteria described about, another 2% may be obtainable if the bike is still the current model"

Category 4 - FAIR CONDITION

Bikes that have received less attention than those described as good. These are unlikely to be clean, tyres may be worn and under-inflated, recalibration is required of the components, ends of the pedals are scuffed, but still recognisable as a recent acquisition after one year.

The document says "Historically, it has always been extremely difficult to sell such a bike..............we believe that it is near to impossible to put a price on these bikes, but recognise that sometimes it has to be done. 6% of the original would be likely to receive attention and possibly a sale"

Category 5 - POOR CONDITION

This is a bike that despite being only a year old, will demonstrate all the signs of being uncared for. The chain and moving parts will be coated in a thick, black muck that accumulates over a long period of time. Tyres will be worn and under-inflated, scrapes and scratches to the paintwork, rust in evidence.

The document says "this bike is effectively worth nothing at all, in that it will likely be impossible to find a buyer.........5% of the original price is a reasonable expectation with an additional 2% mentioned earlier if it is a contemporary model"

Bikes are expected to lose approx 2% in value per year .

"Pricing a second hand bicycle is the most inexact of inexact sciences. Nevertheless, by applying some rules and common sense assumptions about both the bike and its likely buyer, we can confidently set some guidelines."

SO, I do hope that this ends peoples anxieties about "Fair market value" which the Government literature on this scheme have always detailed. Please do not give HR a hard time as I am sure you will work out that the above percentages are pretty nominal in reality and even more important don't give the staff in Evans a hard time. They are just doing their job, work with them.

Happy cycling.

ris

my office generally adheres to the fair market value being 5% of the original scheme outlay, but at the end of the day it is at the companies discretion.

Massimo - interesting view from the met, although it does suggest that it could pay to treat the bike like crap for a year to save 5%! on day 364 you could ride it through a hedge backwards to save a few bob.

alfablue

My employer says that the bike can be purchased at the end for 5% of the purchase price. Although this seems to slightly arbitrary, and HM Rev & Customs might take another view, this seems a fairly typical approach as far as I have heard. Technically the employer should not make any statement about the future purchase of the bike by the employee as then it becomes a hire purchase agreement rather than a hire agreement, the former not being tax exempt, however, in practice unless it actually forms part of the signed agreement I think they can get away with this.

ris

the cyclescheme have a bit on their website employees FAQ about this, if it helps for the company finance bods:

What happens at the end of the loan period?

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. Your employer needs to assess each bike separately as to its worth but in our experience the market shows values to be 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.

Mikelyons

Hi Matty

I'm told that HMRC are comfortable with the 5% purchase value & that this was agreed with them.

I used this value myself before & had no problems either with HMRC or employer.

HTH
Mike

geocycle

It also depends on the hire period. We will have to pay back the voucher over 12 months but our hire period is 36 months. Therefore any fair market value adjustment will be very small indeed after 36 months. One of the scheme's weaknesses is that employers cannot give written guarantees above FMV because of C+E rules regarding perks but most employers are giving 'hints' through their providers.

richk

I got charged 5% of the original purchase price at the end of my 12 months.