Cycle to Work Scheme

benji90

I am the owner of a business that employs around 20 people and was thinking of setting up a cycle to work scheme. I have looked into the one provided by Cyclescheme and I am a bit confused to be honest. As I understand it, it works something like this:

Employee chooses bike at bike shop
Employer approves bike
Cyclescheme issue voucher to employee
Employee redeems voucher at bike shop
Employer pays Cyclescheme for the full invoice cost of bike
Employee receives hire agreement from Cyclescheme and pays for the bike over 12 months via salary sacrafice, therefore saving the Tax and NI.

I am clear on how the savings would work but what I dont understand is why I need Cyclescheme? Why dont I just go into the Bike shop myself buy the bike and rent it to my employee? Surely that amounts to the same thing? It would also allow us to negotiate a discount on the cost of the bike.

The other thing that I dont understand is this fair market value business. If the bike is worth say £1200 new then surely the fair market value after 12 months will be considerable so you end up paying for the bike twice if you want to keep it.

Interestingly enough reading the small print of the contract with Cyclescheme at the end of the loan period the owenership of the bike acutally transfers to Cyclescheme it is then Cyclescheme who offer it to the employee at a fair market value.

Sorry if I am being thick and completely missing the point but at the moment I really cant see any advantage to using Cyclescheme.

alfablue

There is absolutely no reason why you can't do your own in-house scheme, indeed it would be better. Cyclescheme charge the bike shop a 10% commission so they tend not to pass on reductions and / or charge an extra levy. Also they won't work with some retailers (for instance Planet-X) You can download all the forms from the likes of Wiggle, Planet-X or Evans, then customise them to your own business - job done!

The fair market value is often set at 5% but many employers will charge less than that, just a nominal fee - HMRC in theory, could challenge you, but I don't think this has ever happened.

il_principe

I've never used cycle-scheme but can I just say - "good work fella," it's great to hear from business owners who are actively involved in encouraging employees to cycle. If only more of the larger organisations would follow suit.

benji90

Alfablue - thanks for the very helpful reply. Glad I am not as stupid as I look!

Jashburnham - in all fairness its probably a lack of awareness more than anything, as its really a win win all round. Employees get a nice shiny new cheap bike and I save the Employers NI - which is bound to go up shortly! I just hope they still make it to work on time!

Incidentally that Pinarello Prince is ABSOLUTELY stunning!!! Do u think I could get that on a cycle to work scheme!! lol.

jcuk

I think the reason to have the cyclescheme is the savings in tax from the point of view of the employee. If you rented a bike to the employee then then any ammount they paid you would have already been taxed. You coudnt just reduce the employees salary to pay for the bike, as it would be a seen as taxable benefit and still liable for income tax.

To add even more cost to this, if your company was VAT regietered, you might be obliged to charge VAT on the rental to the employee too.

(Im not an accountant btw, this is just based on my limited knowlge of the tax system)

RufusA

@alfablue +1

There is IMHO no reason at all why small employees in one location should use Cyclescheme or their ilk. It just introduces extra cost, and hassle whilst you wait around for ages for vouchers etc.

This is an ideal opportunity for an employer to build a relationship with an LBS that would provide excellent mutual benefits.

The 5% FMV is IMHO a work of fiction based on the Home Computer Initiative (high value items rented over 3 years that devalue quickly). However I doubt if HMRC would have the heart to challenge it.

If you were feeling generous as an employer you could even dispense with the salary sacrifice aspect, treat it as an early Christmas bonus! With a tame local newspaper, and a good take up by employees you could even get a little "green initiative" photo story out of it.

Rufus.

alfablue

The scheme is essentially a hire agreement between the employer and employee (not a hire purchase scheme which would not attract tax savings), it is merely funded by salary sacrifice of the employees gross pay.

il_principe

benji90 wrote:

Alfablue - thanks for the very helpful reply. Glad I am not as stupid as I look!

Jashburnham - in all fairness its probably a lack of awareness more than anything, as its really a win win all round. Employees get a nice shiny new cheap bike and I save the Employers NI - which is bound to go up shortly! I just hope they still make it to work on time!

Incidentally that Pinarello Prince is ABSOLUTELY stunning!!! Do u think I could get that on a cycle to work scheme!! lol.

Cheers! It's my baby. Safe to say it's not a commuter steed!

benji90

jcuk wrote:

You coudnt just reduce the employees salary to pay for the bike, as it would be a seen as taxable benefit and still liable for income tax.

To add even more cost to this, if your company was VAT regietered, you might be obliged to charge VAT on the rental to the employee too.

That, as I understand it, is the very point of the scheme. Renting the bike to an employee is FREE from benefit in kind tax and therefore I can reduce their salary to pay for it without them paying extra tax.

My company is exempt from VAT as we operate in the insurance industry so its not an issue for us however having read other posts I believe it is up to the individual company as to whether they charge VAT to the employee. Cant see why they would as they would more than likely reclaim all of the VAT they pay on the bike.

alfablue

I think the issue is whether the company can buy the bike VAT free or reclaim the VAT and pass the saving on to the employee, or not. In my view it is bad form if the employer can do this but doesn't pass the saving on to the employee. Some employers cannot do this (such as my university, and probably your company), so there is less of a saving to be made, but I am still very happy with the deal. I don't see why employers should profit by £150 by passing on the VAT to the employee whilst reclaiming it themselves, it seems very wrong (don't know of the legality of it but it feels like a scam). Not for one minute suggesting you would be motivated in such a way Benji, just adding my 2p worth.

benji90

No I absolutely agree - It would border on imorale to reclaim the VAT you pay on the bike and then charge it to the employeee and pocket the difference. If I could reclaim the VAT I would, most deffinately, pass it on but because we dont charge VAT on the products we are not registered for VAT and therefore cant reclaim any. We have to charge IPT (insurance premium tax) which is basically VAT with a different name, but which is not reclaimable.