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Fair Market Value of Cycle 2 Work schemes-can i get shafted?

hugh1982hugh1982 Posts: 40
edited September 2009 in Commuting chat
I'm trying to get my company to implement a cycle to work scheme and have suggested they use cyclescheme.co.uk rather than a big retailer like Evans because i've got my eye on a condor.

What's worrying me and my employer a little bit is this notion of charging fair market value to the employee to buy the bike at the end of the hire period - does anyone know how this is calculated? My employer doesn't want the hassle of calculating it and i don't want to get shafted - any advice welcome!
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  • My company uses Halfords. I know they have a certain reputation but the advantage is that they can a) get pretty much any bike you want in stock (one of my colleagues got something carbonified from Planet-X, for example) and b) have links with certain other independent retailers such as Condor (and guess where my shiny new wheels came from).

    The fair market value at the end of the period is a bit of a puzzle. Both my current employer and my previous employer set fair market value to nil. Yup, zilch. And my previous employer was one of the Big 4 accounting firms* so I can't believe they hadn't looked into the ins and outs of this. Perhaps they set it to nil as it is just too much hassle getting the employees to pay at the end of the period? Not sure if it makes a difference that my current employer signs you up for 2 years rather than 1 - that is, I guess the argument might be that the bike is depreciated fully over 2 years.

    Plus, the cost is paid off over 2 years such that the employee has paid back the full amount (i.e. my employer divides the bike price by 24 and deducts this 24th from each month's salary) so would seem a little harsh if they then charged a further fee.

    I get the feeling that some other companies do charge a fee. This seems to be a fairly nominal fee - say a flat £50 - but might be best to wait for someone else to confirm that.

    * I feel obliged to point out that I'm not an accountant. Don't know why - perfectly respectable profession and you get to wear nice, grey suits. :lol:
    Never be tempted to race against a Barclays Cycle Hire bike. If you do, there are only two outcomes. Of these, by far the better is that you now have the scalp of a Boris Bike.
  • sarajoysarajoy Posts: 1,675
    edited February 2009
    Well the whole cyclescheme thing makes use of a tax loophole where the company can lease the bike to you tax-free. HOWEVER as soon as it becomes hire-purchase, then it's liable for VAT charges.

    So, if they named the final price, they couldn't let you off the tax - which is why the waters are so muddy! They're evading the system a little bit (with the gov's consent) and keeping the final sum pretty hush-hush. The "fair market value" seems to be quoted at around 5% of the bike's RRP, which seems very low to me but of course I won't argue....

    ...at my place, you pay off the bike in 12 months, but remain in the agreement for 3 years - at the end of that, it seems they don't care what happens to the bike. But if we leave the company/agreement before then, we have to pay this 'fee' to keep the bike.

    Odd, innit.
    4537512329_a78cc710e6_o.gif4537512331_ec1ef42fea_o.gif
  • CiBCiB Posts: 6,098
    There's a discussion on this over on Road -> Road Beginners -> Why Is C2W So Popular. In it, is Evans Cycles own valuation methodology...

    Bear in mind this from their retail PoV, not 'What you'd get on Ebay'

    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"
  • Ah, good point Sara. My current and previous employers are not explicit about the final payment, just saying that such a payment will be required. In practice, this has always been set to nil.

    Which, if it has been used for commuting for some time would tie in with Evans valuation methodology quoted by Chris. I must say, I'd take a one year old bike off Evans hands for 10% of the original price. It'd have to be pretty shagged for it to cost more than a few quid to get in tip top shape.
    Never be tempted to race against a Barclays Cycle Hire bike. If you do, there are only two outcomes. Of these, by far the better is that you now have the scalp of a Boris Bike.
  • CiBCiB Posts: 6,098
    I''ve seen the Evans thing before and have an idea that it is actually their valuation for C2W bikes, specifically in response to the question 'how much is it worth for the option to buy at the end of the repayment period?'

    It ties in with the generally accepted cost though of a final payment around 5% - 10% that crop s up in these discussions, and which seems about fair after paying for it over 12 / 18 / 24 months.
  • Our C2W scheme is run through cyclescheme: so far everyone I know who used it was charged 5% at the end of lease period. I'm pretty sure it always is but, as sarajoy mentioned, they can't actually state this up-front or it makes it Hire-Purchase rather than a lease.
  • alfabluealfablue Posts: 8,497
    My employer uses Cyclescheme too, and although their not supposed to they do say up front it will be 5% (although it doesn't appear on the agreement). Some employers suggest up to 5% or not more than one month's payment.
  • Thanks for all the replies - very helpful.

    I've looked into cyclescheme.co.uk and have seen the contract that they passed to my HR dept. As part of the contract, they state that after the initial 12 month period, 'ownership of the equipment will transfer from the Employer to Cyclescheme in consideration for the credit of £1.00 by Cyclescheme and with full title guarantee'. Ok, so that means cyclescheme take ownership for just £1!

    If that doesn't sound too hot then it gets better in the next section:
    'Following any transfer of ownership under the clause above, Cyclescheme will offer to sell the relevant Equipment to the relevant Employee as a price not exceeding the fair market value of the Equipment at the time, as reasonably determined by Cyclescheme'.

    Now, correct me if i'm wrong but i think cyclescheme determines FMV either by 5%of voucher value or if it wanted to get a higher value, it might get some LBS quotes. That means if I had a original voucher worth £1000 they would pocket a minimum of £50 having paid just £1 for the bike from my employer. That seems wrong.

    Does anyone know whether it's possible to be part of cyclescheme and get a clause inserted so that they don't take responsibility for selling the bike at the end of the hire period?
  • biondinobiondino Posts: 5,990
    Why do you think Cyclescheme off the service? They're a commercial entity! They want to make £££!
  • alfabluealfablue Posts: 8,497
    They also make a commission from the LBS at the start of the deal - 10% I think, so they make 15% on the whole deal if this is right - fair enough I guess.
  • Sian1973Sian1973 Posts: 1
    I got stung recently after trying to get a bike through a cycle to work scheme run by Cycle Solutions - they told me that I would be able to pay 1 months hire payment at the end of the hire period to take ownership of the bike but I have now been told by my employer that I must pay fair market value.
    HM Revenue & Customs state that this is the amount that the bike would be sold for on the open market (I have searched the HMRC website for a definition but cannot find one - can anyone help?) :?:
    In short I have now been told that to buy the bike I will hire for 12 months could cost me as high as 80-90% of it's retail value if it is still in good condition which is a joke and I feel I was misled and scammed by Cycle Solutions! :evil:
  • alfabluealfablue Posts: 8,497
    See the post above, Evans evaluation suggests a fair market value of 10% of the shop price for a year old bike in Good Condition.

    99.9% of cycle to work employers are charging 5% or 1 months' rental

    If your employer led you to use Cycle Solutions and the information you were given suggests what you state, I think you would have a legitimate claim against one or both organisations for your losses.

    Have a word with your employer, show them all the evidence that you can find on this forum of what other employers are doing, and tell them to get a grip, or you will be getting nasty!

    My employer (a large University) states openly that the final charge will be 5%. They aren't actually allowed to state this at the outset as this could be viewed as a non tax-exempt hire purchase agreement rather than a tax exempt hire agreement, nevertheless, we (employees) are completely aware of the deal on offer and uptake has been at a rate of about 100 per year, a great success that they are proud of in pursuit of their green credentials.
  • fletch8928fletch8928 Posts: 794
    I bought a bike on the cyclcescheme last feb and i was a triffle concerned about the "fair market value" but when i was talking to workmates who bought bikes before i did they told me ithey were charged a fair price. one of them bought a runaround for £300 some were on £500 bikes i was getting back into the sport after 13 years and decided to buy with longevity in mind and not wanting to pay twice just to get an improved bike so i spent £992 pounds. all of us were quoted the same final payment of £5 yes £5 and that went to the works charity. i would say just badger the company to tell you exactly what it would be as i am sure if you have been ripped off by your company they are trying to put cofferes back in to there accounts. After all is said and done the scheme is all about tax breaks (healthy employees) and doesnt actually cost the company anything.

    one last thing. i was not impressed with the terms of ownership and what happened if you lost your job. i took it up and it worked for me. i would say there are many more happy people through cycle schemes than un happy ones
    fly like a mouse, run like a cushion be the small bookcase!
  • gtvlussogtvlusso Posts: 5,112
    My employer uses Halfords (bloody useless!). They calculate 10% of the letter of collection on termination of the contract - basically £100 for me.

    However, my C2W is over 18 months and I will have completed around 8000 miles on the bike by then, so it will be knackered and not worth paying the FMV. I will ask them to take it back - however, I don't think they will collect it, as there is no method of collection in place and no policy on it - no one has ever had one collected, call their bluff as such. I got a Boardman team road bike - it is doing about 200 miles a week at present - excluding racing and weekend rides. I don't intend to change anything on the bike unless it completely wears out.

    I also work for a massive employer, so they only run C2W at 3 month intervals - if I am between those intervals of bike ordering and bike collection - I am screwed, I cannot get to work - nice few weeks of working from home!!

    No car!
  • passoutpassout Posts: 4,425
    They can just charge a fixed amount I think - £50? Or they can go for a % of the purchase price. I'd ring cyclesheme myself, they seem helpful.
    'Happiness serves hardly any other purpose than to make unhappiness possible' Marcel Proust.
  • FyPunKFyPunK Posts: 160
    Hang on chaps, I am getting a little confused here, at the end of the term (cyclescheme) do I pay my employer the 5% or whatever or cyclescheme? I have it in my head its cyclescheme, just browsed over the contract which suggests its them. Fletch8928 suggests its the employer ("all of us were quoted the same final payment of £5 yes £5 and that went to the works charity.") :?
    www.justgiving.com/aidyneal Cycling Manchester to Blackpool. Look out for number 1691
  • fletch8928fletch8928 Posts: 794
    i never even thought it went to the cyclescheme (final payment) . I was and still am convinced that the bike shop only receives 90% of the voucher value and that the other 10% goes to the scheme. Your final payment goes to the company. lease/hire purchase, tax benifit ect does mean they cant give a quote on what a final payment may/will be. I must also say that it wasnt until we had done the 12 months of leasing that they said what we had to pay at the end, i was expecting to pay 5% so i got a nice surprise. Ask your HR dept for previous examples if they have any
    fly like a mouse, run like a cushion be the small bookcase!
  • FyPunKFyPunK Posts: 160
    I am the HR sort of, we are a two practice Opticians and it was my self that set the scheme up for the boss as a few of us do cycle but as yet only myself has taken up the scheme. I read it as Cylyclescheme purchase the bike for a nominal fee and I pay them the FMV, however I also thought back and I am sure now that the chap in the LBS that put me onto said I buy it off the Employer. Had a drink and slept since tho! I do know that Cyclescheme take a 10% cut of the retail price from the LBS.
    www.justgiving.com/aidyneal Cycling Manchester to Blackpool. Look out for number 1691
  • rolf_frolf_f Posts: 16,015
    gtvlusso wrote:
    I also work for a massive employer, so they only run C2W at 3 month intervals - if I am between those intervals of bike ordering and bike collection - I am screwed, I cannot get to work - nice few weeks of working from home!!

    No car!

    My company has over 10,000 employees and it is only run once a year so count yourself lucky. Anyway, you aren't screwed if they don't run the scheme. You just have to find an un-government subsidised way into work like 99% of the rest of the population. There is no law against you buying your own bike!
    Faster than a tent.......
  • biondinobiondino Posts: 5,990
    You don't need to use Cyclescheme for C2W, of course. They are a facilitator who, naturally, takes a cut.
  • ceecee Posts: 4,553
    biondino wrote:
    You don't need to use Cyclescheme for C2W, of course. They are a facilitator who, naturally, takes a cut.

    indeed.

    my employers are now starting a scheme which they will run and administer themselves. basically we can choose a bike, they will go and buy it, then spit the cost minus vat over 12 months and take it from salary at source (also giving the juicy income tax break).

    It seems better this way as bike shops are more likely to discount it if they are not already giving 10% away to cyclescheme or whoever.
    Whenever I see an adult on a bicycle, I believe in the future of the human race.

    H.G. Wells.
  • Hi everyone, this is my first post and I came across your discussion as I was actually searching for more information on Bike Scheme FMV’s.

    I have set up a Cycle to Work scheme for my company through Cyclescheme and probably have some insight both from the FMV point of view and the HMRC point of view.
    Cyclescheme administer the processing of the quotes and the issuing of vouchers for us. This means that they manage the bike suppliers, invoice the company for the cost of all the bikes purchased through the scheme and then issue the vouchers to our employees once the invoice has been paid. They openly take a commission from the independent bike shops. This is one area where they make their money.

    Currently our company are handling the FMV transaction bit at the end of the 12 month 'hire' period, although Cyclescheme were quite happy for us to give that bit to them as well. They really do expect employers to transfer ownership of all the bikes to them possession for just £1. That is the bit that I find difficult, so we have decided to hang on to the FMV transaction part. As a company I wanted to charge just a notional fee of say £1 to our employees, but the HMRC were not happy about that as it is too much like a Hire Purchase agreement. They are not even happy about the 5% of the original retail cost of the bike, which appears to be the standard and is certainly what Cyclescheme recommend and indeed charge. The HMRC believe that each bike and the associated safety equipment are independently assessed for their value. Imagine someone trying to value a pair of year old cycling shorts? Imagine a serious cyclist having a pair more than 4 months old!

    Also, what if the employee does not wish to take up the option to buy the bike, what then? Well in our scheme they can continue to use the goods until they leave the organisation, in which case they then need to return them. But what if they just handed the goods back to the comapny aftyer one year. What value would those bikes be to the company then? Worthless I should imagine, my company would either donate them to the African bike charity or scrap them altogether.

    Cyclescheme did confirm to me that they actually run the scheme for numerous government bodies and agencies including the Office of Fair Trading and multiple councils, NHS trusts and police forces.

    I should also point out that all these schemes (providing the maximum voucher value stays at no more than £1k) are governed by a blanket consumer credit licence. This in turn is governed by the consumer credit act (OFT is responsible for that) which explicitly states that you have to be 18 years of age to take part. The Department of Transport state that the scheme needs to be generally available to all employees, but if you employ under 18's then the HMRC can get a little bit antsy about giving your scheme approval. They believe that if you do employee under 18's then you are non-compliant with the government guidelines by not offering the scheme to all staff. Go figure. How many of the above named bodies must employ under 18’s?

    It seems HMRC do not really like the scheme at all, so it is in the interest of each employer trying to set up and run the scheme that they negotiate locally with their HMRC Customer Relationship Manager. Some larger companies will find that being helpful and open to the revenue is the best way forward. Depending on the relationship your company has with the revenue will depend on what you can get away with I suppose.

    Finally, one little publicised point to rise is that most companies could actually make up to 25% in Capital Expenditure tax on the total cost of the equipment. My company has not pursued this angle yet, but that sort of claw back would be a significant contribution to those new bike facilities, shelters and showers!

    Sorry for the long post, but thought you may be interested in some of the nuances… oh one last thing, at present employers are not expected to police the scheme so most of the employees in our company seem to have got themselves very nice bikes for use during holidays and at weekends.

    Cheers
  • My employer has absolutely no desire to buy back the bike from an employee, and only asks for a final payment as a formality as part of the programme - so the final charge is absolutely nominal - £20 or something stupid. Anyone who gave back the bike at the end of the scheme, with that kind of price, would be a fool!

    They're on Cyclescheme too for what it's worth!
    Planet X Nanolight High Modulus (Roadie) | 2008 Giant Bowery (Fixie)
  • Our company have been most generous and let cyclescheme have the bike at the end of 12 months.
    They then charge the employee 5% + Vat to transfer ownership from cyclescheme to employee.

    So on £1k spent Cyclescheme can make £160.50 (£3 admin fee for the voucher) !!

    Not a bad earner for them is it as all they do is do a bit of paperwork.
    FCN 8 Hybrid
    FCN 4 Roadie
  • Just made my final payment on my bike - £1250 bike reduced to £1000 - and the final payment was £50 plus tax paid to Cyclescheme Ltd. Total cost about £550. Brilliant scheme!

    Now waiting for next scheme window at work and going to spend the £1000 on a frame and build it up.....happy days :lol:
  • We've just got into the cyclescheme scheme - the 'suggested' figure in the FAQ's is 5% FMV but covered in all sorts of disclaimers and not mentioned in my contract.

    It's also stipulated in our b2w contract that for the duration of the lease, the bike must be used for at least 50% of all commuting and work related journeys, so it'll be pretty well hammered in comparison to 99% of new bought bikes at the end of 12 months anyway.

    however a bit of a thread drift

    my first payment went out on my payslip this month and seems to have been the £72.xx Net Purchase Price on which I've still been Taxed and NI'd.

    I thought the idea was that this net figure was taken from salary at source and the tax and NI saved on this gave the final monthly payment figure of £51.xx for a full £1000 voucher. (£600+ over the course of a year = the ~40% saving advertised)

    As it stands I'm going to be paying £870 through salary, a £50 FMV supplement at the end and when taking the mandatory safety equipment and insurance into consideration, will have paid out well over £1000 at the end of 12 months for a £1000 bike.
    (granted i've got safety equip and insurance already but the stipulation would still be the same if I hadn't)

    I know they've got it wrong but am wading through treacle trying to get them to see this.

    any ideas or people willing to share the inner workings of their payslip deductions to give me ammo to show them how daft their figures are.
  • alfabluealfablue Posts: 8,497
    Your pay slip should show the gross monthly deduction, £72. Your pay is effectively reduced by £72, so you pay tax and NI on £72 less, so that's where the saving comes from. If you pay 20% tax that is £14 ish, and 11% NI is £8 ish saved. £72 - 14 - 8 = £50 net. The net amount doesn't show on your pay sip, you just paid less tax and NI. £50x 12 = 600, + final value fee of 5% = £50, + vat of £7.50 = £57.50, total paid on £1000 bike = £657.50 ish.

    If you are a higher rate tax payer, it costs you less. If your company can reclaim the VAT then it should be deducted from your payment, reducing the cost further.
  • I can't find the post here, but a couple (maybe more) months back someone else on this forum had a problem with their work taking the deduction after tax instead of from the gross pay.

    It may be worth a search, if only for examples of 'HR-friendly' :roll: explanations people suggested.

    As I understand it, your explanation seems correct (if you are part of such a scheme), and an error such as you described has happened to at least one person previously (and IIRC, to all of their colleagues for a few months).

    I think I made a comment in that thread about whether the company might consider a 'loss of use' payment to cover the inconvenience of not having had the money at the right time.

    Edit: here you go: http://www.bikeradar.com/commuting/forum/viewtopic.php?t=12644622
    Edit 2: Only a month back - hmm, seemed longer ago. That was cyclescheme too. It seems some companies offload to an external contractor and then cannot handle the 'simple' part themselves :roll: . There is an example and reference to cyclescheme's online calculator on that thread.
  • Thanks guys. especially for the link. Thats exactly where I am too, but unfortunately 1st Sep was the cost of living rise as well so my like for like payslip comparison is skewed too.

    I'm definitely in CS and have the deduction on my payslip as Cycle Scheme £72.81 T N.
    indicating that I have paid Tax and NI on it.

    my car scheme loan which is also dedcted from Gross has no T or N beside it.

    I knew I was right in my understanding and that I'm being twirled.
  • Thanks guys. especially for the link. Thats exactly where I am too, but unfortunately 1st Sep was the cost of living rise as well so my like for like payslip comparison is skewed too.

    I'm definitely in CS and have the deduction on my payslip as Cycle Scheme £72.81 T N.
    indicating that I have paid Tax and NI on it.

    my car scheme loan which is also dedcted from Gross has no T or N beside it.

    I knew I was right in my understanding and that I'm being twirled.

    If your NHS and paying 22% tax rate you will only save 29% using cyclescheme.

    We can't claim the VAT back.
    FCN 8 Hybrid
    FCN 4 Roadie
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