Cycle to Work - Final Payment

tofu21

Hello,

I've got a £850 bike that I've have been paying for almost a year. The arrangement is pay for 12 months, then have it free for 6 months then I have the option to buy it.

I've gotten lost as to what's happening with final payment and I've heard contradicting things when it comes to fair market value.

what can I expect to have to pay out in 6 months time?

Shaved Legs

"what can I expect to have to pay out in 6 months time?"

That really depends on what your employer decides to do. They get to implement the rules of the scheme depending on how they interpret the HMRC rules.

In my case we've just been given 3 options at the end of the 18 month hire period:
1 - Buy the bike now at the FMV at 21% original cost (as defined by HMRC).
2 - Return the bike to the company at a 10% admin fee.
3 - Extend the hire period to 54 months (2016!) at a 10% admin fee, and take ownership at the end.

Feels like they are ripping me off big time.

tofu21

That's what I am expecting the best part of £180.

bakerstreet

Shaved Legs wrote:

"what can I expect to have to pay out in 6 months time?"

That really depends on what your employer decides to do. They get to implement the rules of the scheme depending on how they interpret the HMRC rules.

In my case we've just been given 3 options at the end of the 18 month hire period:
1 - Buy the bike now at the FMV at 21% original cost (as defined by HMRC).
2 - Return the bike to the company at a 10% admin fee.
3 - Extend the hire period to 54 months (2016!) at a 10% admin fee, and take ownership at the end.

Feels like they are ripping me off big time.

Looks like Option 1 is the best. If you bought the bike for £900, to buy it for £189 sounds pretty reasonable TBH. Bikes that were £600 new fetch £250-£300 on ebay, so £189 sounds pretty good to me.

I suppose it does derpend on how much you paid over the 18 months previous.

I'm so glad I just bought my bike outright.

Shaved Legs

Option 1 would be ok if it was just he 21%, but I've paid most of the cost of the bike over the last 18 months. If I were to buy it now I'd be paying more that 80% of the original cost. If I extend the hire period then it drops to about 70% in 2016. Not exactly the a fantastic saving.

crumpetman

30% saving plus interest free credit sounds good to me! How else are you going to get a deal as good as that? Even if you buy last years model for cash you would still be looking at a maximum of 30% off.

Shaved Legs

It would be a 30% saving over 6 years. I could have done much better than that by shopping around never mind the credit.

crumpetman

I know technically you are still leasing the bike but what is to stop you from selling (or giving away) the bike after you have paid the fee to extend the hire agreement?

But still, how can you purchase a brand new bike and get a 30% discount even based on ownership for 6 years?

pdw

tofu21 wrote:

Hello,

I've got a £850 bike that I've have been paying for almost a year. The arrangement is pay for 12 months, then have it free for 6 months then I have the option to buy it.

I've gotten lost as to what's happening with final payment and I've heard contradicting things when it comes to fair market value.

what can I expect to have to pay out in 6 months time?

18 months means a FMV of 21%. You should suggest to your employer that they sell it to you for much less than that, and tax you on the difference.

How much you can save with the scheme depends entirely on how it is set up. Our scheme gives you around 44% (basic rate) or 50% (higher rate) saving, places no restrictions on where you can buy from, and doesn't use vouchers that cost retailers 10%, so you can shop around for the best deal, then save well over 40% and spread the payments too.

tptvmbircn

AS above save and buy outright, I'm not touching a government scheme with a 10 foot bargepole!

teulk

I got £1000 voucher. FMV was classed as 25% = £250. I only had to pay my normal tax rate on the £250 of 20% = £50 final payment. That £50 is being paid back by way of my tax code being adjusted to pay it back on a monthly basis over the next 12months. Basically as far as im concerned i dont even notice it coming out of my pay.

bakerstreet

crumpetman wrote:

30% saving plus interest free credit sounds good to me! How else are you going to get a deal as good as that? Even if you buy last years model for cash you would still be looking at a maximum of 30% off.

I managed to get 25% off on a cash purchase, but I appreciate I didn't get interest free payments.

RufusA

crumpetman wrote:

I know technically you are still leasing the bike but what is to stop you from selling (or giving away) the bike after you have paid the fee to extend the hire agreement?

No "technically" about it, it IS still the employers / scheme providers property during the extended hire period, so it is not yours to sell. It would be theft in the same way as if you were to sell a company provided laptop or blackberry!

If you wanted to sell, you could ask to terminate the agreement early and pay the FMV at that point (funded from part of the proceeds of the sale). However there may be some tricky explaining to do if you sell the bike for £300 with a "FMV" of £100.

Of course the likelihood of anyone finding out is minimal so :twisted: ....

Rufus.

crumpetman

I know it is still the employers property but there is no way it would be classed the same as selling a company mobile phone or laptop. If my company laptop gets stolen/broken etc then the company foots the bill and replaces it ASAP so I can do my job. If a bike gets stolen/broken then it is up to me to claim on the insurance/fix it.

I am not talking about selling it while paying for it, but once you have made that payment to extend the hire period then it effectively it is yours. No one is going to ask to see the bike or assess it's value.

BTW I am not condoning doing this, I was just trying to work out how you can get a new bike for 30% off over 6 years.

RufusA

crumpetman wrote:

I am not talking about selling it while paying for it, but once you have made that payment to extend the hire period then it effectively it is yours. No one is going to ask to see the bike or assess it's value.

I agree with the moral sentiment! But there is no "effectively it is yours" in law.

For sure you'll get away with it if you sell the bike during the extended hire period, at worst you'll lose your extended hire period deposit (which you are going to lose anyway).

Personally I wouldn't buy a second hand ex-cycle-to-work bike, unless I was 100% sure the ownership had been transfered.

Rufus.

Rufus.

jawooga

Agree with the comments of "check with your employer".

My employer is extending the rental period from 1 year to 4 years and will ask the FMV after 4 years in line with what HMRC dictate. However, what rate they decide to 'rent' the bike to the employee for years 2, 3 and 4 is up to them.

Worth checking with your employer as rest assured no company specialising in e.g. selling frozen food, wants to suddenly have a fleet of bikes to sell.

sc999cs

jawooga wrote:

Agree with the comments of "check with your employer".

+1

I've first hand experience of Cycle2Work with two different employers. One extends the agreement for 4 years for a 5% fee. The other sells the bike for 5% after one year and the balance is reported to the HMRC as a taxable benefit resulting in a tax code change for the following year so that you pay tax on the extra - £40 for a standard rate payer on a £1000 bike, spread across a whole year.

whitestar1

Shaved Legs wrote:

"what can I expect to have to pay out in 6 months time?"

That really depends on what your employer decides to do. They get to implement the rules of the scheme depending on how they interpret the HMRC rules.

In my case we've just been given 3 options at the end of the 18 month hire period:
1 - Buy the bike now at the FMV at 21% original cost (as defined by HMRC).
2 - Return the bike to the company at a 10% admin fee.
3 - Extend the hire period to 54 months (2016!) at a 10% admin fee, and take ownership at the end.

Feels like they are ripping me off big time.

Hold on there mate, I was under the impression that you have a salary sacrifice for the period and then its yours. Well its your money paying it off. Why this whole thing about buying it at the end of the period? Really confused. I am about to goto to my boss to introduce the scheme. Can someone clear this up please.

whitestar1

stealthelite1986 wrote:

AS above save and buy outright, I'm not touching a government scheme with a 10 foot bargepole!

You might just be right about that :shock:

cloggsy

teulk wrote:

I got £1000 voucher. FMV was classed as 25% = £250. I only had to pay my normal tax rate on the £250 of 20% = £50 final payment. That £50 is being paid back by way of my tax code being adjusted to pay it back on a monthly basis over the next 12months. Basically as far as im concerned i dont even notice it coming out of my pay.

This is what I'm going to do at the end of my 18 month C2W scheme.

I think your employer needs to declare the Taxable Benefit on HMRC Form P11D?

Makes complete sense to me!