Cycle to work scheme rip off

shocka

Help!!!

Feel i have just had my pants pulled down with the cycle to work scheme!!
Bought a bike last Jan for £1000, finished paying for it this year & payed the final payment of 5% of the value of the bike. Just recieved an email from work stating i owe a further £200 bringing the final market value to 25%
I appreciate the scheme changed in August but surley as i started this scheme before the rule change i should only have to pay the 5% final market value.
If this is not the case & i am liable for the 25%, should i have been given the option to extend the hire period for another 4 years & pay 7% of the market value as stated on cycleshemes website?

Help please!!

Headhuunter

The 25% figure is only a guideline, it's not "set in stone", if you feel the bike is sufficiently used and knackered that it's worth less, you can argue that. It is possible to extend the "hire period" at a rental of zero, but I think that's something you need to speak to your employer about, it's not a right. If you're with Cycle Scheme, my understanding is that your employer can retain the bike and extend the rental period, or can pass the bike to Cycle Scheme, they can retain it and then charge you the nominal 5% or whatever it is after 2-3 years or whatever the period is (you need to look that up). Personally I don't understand how employers can sell the bike to Cycle Scheme to retain for you (at zero rental) whereas they can't sell the bike to you....

shocka

Cheers Headhuunter,
I'm pretty sure we should have been given the option to extend the hire period at the end of the first year

Headhuunter

shocka wrote:

Cheers Headhuunter,
I'm pretty sure we should have been given the option to extend the hire period at the end of the first year

Yeah if you're with CS rather than a self run scheme, I don't think extending the rental period through CS is particularly difficult for the employer so you should ask about it...

Salsa

Yeah I wasn't too happy when I received a letter earlier this month saying I had to pay £200 for my c2w. I can't understand how the valuation could suddenly change after I had signed the contract, as I was expecting to pay a 5% final fee, not 25%.
Even better the letter said 'you can CHOOSE to extend the agreement' then they just took the money out of my monthly wages! Some choice..

shocka

Salsa, did you manage to get the agreement extended?

Salsa

shocka wrote:

Salsa, did you manage to get the agreement extended?

Not yet, but I'm off work for a week. Next week when I'm back I'll make sure somethings sorted out.

Headhuunter

Salsa wrote:

Yeah I wasn't too happy when I received a letter earlier this month saying I had to pay £200 for my c2w. I can't understand how the valuation could suddenly change after I had signed the contract, as I was expecting to pay a 5% final fee, not 25%.
Even better the letter said 'you can CHOOSE to extend the agreement' then they just took the money out of my monthly wages! Some choice..

I think the problem is that people expected to pay about 5% as a final fee but this was never written into any contract anywhere, it had just come to be the accepted as about the right rate as a nominal transfer fee. HMRC then waded in with the 25% figure which is ridiculously high. Of course a 1 year old ex rental bike with an original sale price of £1000 would probably sell at £200+ on the open market, HMRC's guidelines do not take into account the fact that people have not really been hiring the bike and have already been paying for the bike through their wages and that the whole point of the scheme is to get people onto bikes and out of cars, not to rent bikes to people and then sell them on...

wintonbina

If you belong to an union ask them to investigate the legality of the contract that you signed. Because it might be that you will have to only pay 5% as per signed document.
Good luck, Tony

chrishumes

i questioned this and said i wanted to return bike or extend agreement. because the company (i think) had already assumed everyone would pay they mustnt have extened the agreement. in the end , i argued and the company said as it was a green company, they would settle the final payment.....

shouldbeinbed

If you find a contract with 5% written into it. I know mine was deliberately vague and was written along the lines of an option to purchase at a price to be agreed' it turned out to be 5% but even in the cyclescheme FAQ pages they are (were) careful to say 5%was an advisory figure and not set in stone.

paulintheforest

My understanding from our company is that to give an agreed price to buy the bike turns it into an HP contract and loses the eligibility for the tax breaks. We are lucky that they are using Cyclescheme so have set up the 3 year additional rental period. Ineed to find different excuses now not to buy myself a Tricross for the winter.

I would suggest talking with your HR and threatening to return the bike, however I think my contract had a disposal fee that was equivalent to the market value transfer price.

cloggsy

You don't have to 'pay' the 25%, you can opt to have the £250 taken off your tax code for the following year, thus you can pay if off that way!

pdw

I think the problem is that people expected to pay about 5% as a final fee but this was never written into any contract anywhere,

... and it can't be because you are hiring the bike from your employer, and any provision for transfer of the bike at the end of the hire period would change it to a hire-purchase agreement and mean that your company couldn't take advantage of the group credit licence that enabled them to rent the bike to you without having their own credit licence.

it had just come to be the accepted as about the right rate as a nominal transfer fee.

... but a "nominal" fee was never the deal. There is no tax break for companies selling bikes to their employees. It has to be a fair value, or it's a taxable benefit.

HMRC then waded in with the 25% figure which is ridiculously high. Of course a 1 year old ex rental bike with an original sale price of £1000 would probably sell at £200+ on the open market HMRC's guidelines do not take into account the fact that people have not really been hiring the bike and have already been paying for the bike through their wages and that the whole point of the scheme is to get people onto bikes and out of cars, not to rent bikes to people and then sell them on...

The tax break is for "making bikes available" to employees. It's not actually about allowing employees to buy bikes cheaply.

The 25% figure is only a value above which they will not question the valuation, and it's actually pretty conservative.

The problem is that Cyclescheme and others set up schemes on the unreasonable assumption that they could get away with a "nominal" transfer fee despite there being absolutely no tax break for this.

To answer the OP's question: the fact that the scheme started before HMRC issued guidance on FMV is irrelevant. What is relevant is that you say that you have already paid a fee to buy the bike. Surely the deal is now done and your company can't now come to you and say that the price has changed? However, by buying the bike at less than FMV, you have received a taxable benefit. Tell your company to charge you tax on the £200 instead.

The Rookie

Lets be clear, the scheme did not 'change' at all, HMRC merely emphasised what the rules had always required and which were not being applied, the guidelines are just that, if the FMV can be shown to be llower then that FMV should be applied.

Simon

benpinnick

cloggsy wrote:

You don't have to 'pay' the 25%, you can opt to have the £250 taken off your tax code for the following year, thus you can pay if off that way!

Clogsy is right. Point this out to the company you work for. The basic case is this:

Over the 12 months you have paid off the full cost of the bike to the company, therefore this 25% would actually be _profit_ to the company. Hardly reasonable on an employee benefit.

Over the 12 months, the company will have earned (in a manner of speaking) around 8% on the salary sacrifice in saved EeNIC. This should have covered any admin costs (therefore negating any possible argument that the 25% covers 'costs').

By giving you the bike, but reporting it at 25% value on your P11d they will stay within the HRMC's FMV calculations and therefore within the rules, but you won't have to pay the full value, only the tax on the 25%, and that will be spread across a year. it could reduce your 25% to just 7.5% (or even lower)

Finally, remind them (incase they don't realise) that the 25% is inclusive of VAT.

phillipjohnson

I have always thought 0% finance is a much better way to buy a bike than cycle to work, althought CTW scheme has done a lot for promoting cycling and getting people who haven't ridden for years out on a bike.

I would always advise 0% finance over CTW though.

Headhuunter

pdw wrote:

I think the problem is that people expected to pay about 5% as a final fee but this was never written into any contract anywhere,

... and it can't be because you are hiring the bike from your employer, and any provision for transfer of the bike at the end of the hire period would change it to a hire-purchase agreement and mean that your company couldn't take advantage of the group credit licence that enabled them to rent the bike to you without having their own credit licence.

it had just come to be the accepted as about the right rate as a nominal transfer fee.

... but a "nominal" fee was never the deal. There is no tax break for companies selling bikes to their employees. It has to be a fair value, or it's a taxable benefit.

HMRC then waded in with the 25% figure which is ridiculously high. Of course a 1 year old ex rental bike with an original sale price of £1000 would probably sell at £200+ on the open market HMRC's guidelines do not take into account the fact that people have not really been hiring the bike and have already been paying for the bike through their wages and that the whole point of the scheme is to get people onto bikes and out of cars, not to rent bikes to people and then sell them on...

The tax break is for "making bikes available" to employees. It's not actually about allowing employees to buy bikes cheaply.

The 25% figure is only a value above which they will not question the valuation, and it's actually pretty conservative.

The problem is that Cyclescheme and others set up schemes on the unreasonable assumption that they could get away with a "nominal" transfer fee despite there being absolutely no tax break for this.

To answer the OP's question: the fact that the scheme started before HMRC issued guidance on FMV is irrelevant. What is relevant is that you say that you have already paid a fee to buy the bike. Surely the deal is now done and your company can't now come to you and say that the price has changed? However, by buying the bike at less than FMV, you have received a taxable benefit. Tell your company to charge you tax on the £200 instead.

I suppose you are right if we take the wording pedantically, the whole scheme was basically ill thought out and clumsily shoehorned into existing legislative frameworks which have now be shown to have issues....

phillipjohnson

From what I understand there was a liberty taken for years on what an FMV was and just because nobody complained about it doesn't mean it was ever right or that it would carry on.

To be honest 25% is pretty cheap FMV still after a year.... I would gladly pay £250 for a full suspension mountain bike somebody got on the CTW scheme that was worth a grand when they brand new a year ago, especially considering most of them get used about 3 or 4 times then kept in the garage. You wouldn't find anything that cheap on ebay.

0% finance is the easiest, quickest and most convenient way to buy a bike over a period of time and you know exactly how much you are paying and when.

Headhuunter

phillipjohnson wrote:

From what I understand there was a liberty taken for years on what an FMV was and just because nobody complained about it doesn't mean it was ever right or that it would carry on.

To be honest 25% is pretty cheap FMV still after a year.... I would gladly pay £250 for a full suspension mountain bike somebody got on the CTW scheme that was worth a grand when they brand new a year ago, especially considering most of them get used about 3 or 4 times then kept in the garage. You wouldn't find anything that cheap on ebay.

0% finance is the easiest, quickest and most convenient way to buy a bike over a period of time and you know exactly how much you are paying and when.

£250 on it's own for a full sus MTB or whatever would be fine, it's just that once you've already paid off a chunk of cash through the scheme anyway, an extra £250 makes the scheme pointless, the only way to make C2W worthwhile is to extend the rental period and avoid HMRC's 25% figure.... Otherwise, as people have pointed out you may as well negotiate a cheap price and/or 0% finance

pdw

the only way to make C2W worthwhile is to extend the rental period and avoid HMRC's 25% figure.... Otherwise, as people have pointed out you may as well negotiate a cheap price and/or 0% finance

Actually, it's perfectly possible to make it worthwhile without doing that, although extending the scheme does help.

Cycle to work does not prevent you from negotiating a cheap price. For-profit scheme operators do that by charging bike shops 10%, but companies don't have to use those operators.

Headhuunter

pdw wrote:

the only way to make C2W worthwhile is to extend the rental period and avoid HMRC's 25% figure.... Otherwise, as people have pointed out you may as well negotiate a cheap price and/or 0% finance

Actually, it's perfectly possible to make it worthwhile without doing that, although extending the scheme does help.

Cycle to work does not prevent you from negotiating a cheap price. For-profit scheme operators do that by charging bike shops 10%, but companies don't have to use those operators.

If you go through a middle man scheme like Cycle to Work, who charge retailers for their services, very few, if any retailers will offer you any money off the listed retail price. I shopped around for ages before buying my Ribble and found a lot of good bikes in sales, but as soon as I mentioned I was C2W, none of the shops would offer the sale price...

Salsa

cloggsy wrote:

You don't have to 'pay' the 25%, you can opt to have the £250 taken off your tax code for the following year, thus you can pay if off that way!

Thanks for the advice, I'll certainly ask them to return my £191 & do that instead.

I was really lucky on my C2W anyway
Got mine from a Halfords that had a Cycle Republic in the city as well as a large Halfords. The Cycle Republic sold high end bikes but never really took off, so I managed to get a £2600 Rocky Mountain Element 50 FS which got reduced to £1500, then to £900!

pdw

Headhuunter wrote:

pdw wrote:

Cycle to work does not prevent you from negotiating a cheap price. For-profit scheme operators do that by charging bike shops 10%, but companies don't have to use those operators.

If you go through a middle man scheme like Cycle to Work, who charge retailers for their services, very few, if any retailers will offer you any money off the listed retail price. I shopped around for ages before buying my Ribble and found a lot of good bikes in sales, but as soon as I mentioned I was C2W, none of the shops would offer the sale price...

Which is what I said but with the words the wrong way round. "Cycle to work" is the name for the tax break. "Cyclescheme" is a middle man company that charges retailers 10%.

dilemna

Salsa wrote:

cloggsy wrote:

You don't have to 'pay' the 25%, you can opt to have the £250 taken off your tax code for the following year, thus you can pay if off that way!

Thanks for the advice, I'll certainly ask them to return my £191 & do that instead.

I was really lucky on my C2W anyway
Got mine from a Halfords that had a Cycle Republic in the city as well as a large Halfords. The Cycle Republic sold high end bikes but never really took off, so I managed to get a £2600 Rocky Mountain Element 50 FS which got reduced to £1500, then to £900!

I hope you have actually used your bike to cycle to work rather than only using it on a few dry summer weekends which would be tax fraud and I don't see why I and other tax payers should subsidise fraud. A bike that had hardly been used over a year by sitting in the garage would be worth a lot than 25% of it's full purchase price. However a bike used every day, come rain or shine would likely be a lot more worn so be worth less.

Conjoy

dilemna wrote:

Salsa wrote:

cloggsy wrote:

You don't have to 'pay' the 25%, you can opt to have the £250 taken off your tax code for the following year, thus you can pay if off that way!

Thanks for the advice, I'll certainly ask them to return my £191 & do that instead.

I was really lucky on my C2W anyway
Got mine from a Halfords that had a Cycle Republic in the city as well as a large Halfords. The Cycle Republic sold high end bikes but never really took off, so I managed to get a £2600 Rocky Mountain Element 50 FS which got reduced to £1500, then to £900!

I hope you have actually used your bike to cycle to work rather than only using it on a few dry summer weekends which would be tax fraud and I don't see why I and other tax payers should subsidise fraud. A bike that had hardly been used over a year by sitting in the garage would be worth a lot than 25% of it's full purchase price. However a bike used every day, come rain or shine would likely be a lot more worn so be worth less.

QFT.

To the OP: if your company are charging you the FMV then they are taking you for a ride. There is no reason why they shouldn't charge you the nominal amount and make you liable for the tax (at yourmarginal rate) on the difference between the nominal amount and the FMV.

The Rookie

Eh, its there bike, they can charge what they like unless they made it obvious from the start how they would price it, FMV is what the C2W rules suggest so it's hardly taking for a ride!

Simon

pdw

They don't have to sell it to you at all, and if they do offer it to you, they choose the price. But if they tell you that HMRC requires that they charge FMV then that's not quite true - they can charge you less, it just becomes a taxable benefit.

UKScooby

Can I tag on the end of this thread.

My company runs a self administered scheme with me doing the paperwork.

We now have some members coming to their anniversary. I want to do the extended hire route with people (if they agreed of course and sign up). I therefore need to prepare a legal document to cover this.

There are a number of online examples of the initial contract that I was able to use in the first place. I have not traced examples of the extended period document.

Does anyone know where I can find one - or have sample wordings to hand ?
Thanks

rolf_f

dilemna wrote:

I hope you have actually used your bike to cycle to work rather than only using it on a few dry summer weekends which would be tax fraud and I don't see why I and other tax payers should subsidise fraud.

You only have to equal your leisure miles with commute miles. So, 100 miles of sunny leisure days plus 100 miles of commute is entirely legitimate. But does it really bother you that much? Half the reason for the tax break is to encourage spending. Anyone you get into cycling for leisure is likely to spend a lot of money on their hobby. I've incurred far higher tax costs in the money I've spent on cycling than I've saved off C2W. Infact, for the government it is almost certainly better, given one or the other, to get someone to buy a bike on C2W for mainly leisure purposes than someone to buy one purely for commuting.

pdw

UKScooby wrote:

Can I tag on the end of this thread.

My company runs a self administered scheme with me doing the paperwork.

We now have some members coming to their anniversary. I want to do the extended hire route with people (if they agreed of course and sign up). I therefore need to prepare a legal document to cover this.

There are a number of online examples of the initial contract that I was able to use in the first place. I have not traced examples of the extended period document.

Does anyone know where I can find one - or have sample wordings to hand ?
Thanks

I'm not sure that you technically need any further documentation. I think because you don't take any money off them, it's just a loan, not a hire agreement, and therefore doesn't come under the Consumer Credit Act.

I understand that Cyclescheme do a thing where they take a deposit up front which covers the final fee, or gets refunded if you don't buy the bike. If you want to do something like that you probably do need some paperwork, but otherwise, I think you can just let the employees carry on using the bikes for free.