Cycle to work scheme - confused :-(

rflook

Hi,

I am really hoping someone who has actually purchased a bike recently on the cycle to work scheme can explain this to me. I had my lovely bike nicked from outside waterloo station yesterday :-( So I need to get a new one and thought id take advantage of the cycle to work scheme. But im bloody confused about how much ill actually save

Lets go with these numbers:

Bike is worth say £600, and the scheme runs over 12 months. At the end of the scheme if I want to buy the bike from the company I need to pay 25% of its original value (£150) but I cant figure out for the life of me how much I would pay every month. I know that I will have to make a payment but I cant figure out how much it will be.

Is there anyone out there who can help me with this, I need to know if it is actually worth doing in the first place.

Many thanks in advance

mrtuk

You should check with the company that runs your scheme (your HR dept should be able to tell you that). Your 'savings' would also depend on your tax rate ... so if you're a high rate tax payer, then saving will be more as you pay for the bike pre-tax.

Also, I think how long you lease the bike makes a difference to any final value payment. The scheme i'm on works as follows:
1. Pay for full value of bike over 1st 12 months from pre-tax pay.
- so for you 600/12 = 50 quid per month ... but that's taken out pre tax, so if you're a 40% tax payer then you'd only see 30 quid of that anyway (taxman would be getting the other 20!) ... if you're a 20% tax payer, then you'd have 40 quid less in your pay each month.
2. After 1st year is up they contact you to 'extend' the hire period for a further 2 or 3 years.
- this costs nothing per month, but means they own the bike rather than you...
3. After the additional lease period the cost to 'buy' the bike should be less thatn if you did this after year 1 (so more like 10 or 15%).

I think different schemes do things differently though so as i say it's worth checking to be sure, but the real saving is that you're paying for the bike with your pre-tax salary.

The Rookie

mrtuk wrote:

1. Pay for full value of bike over 1st 12 months from pre-tax pay.
- so for you 600/12 = 50 quid per month ... but that's taken out pre tax, so if you're a 40% tax payer then you'd only see 30 quid of that anyway (taxman would be getting the other 20!) ... if you're a 20% tax payer, then you'd have 40 quid less in your pay each month.

MrTuk as neglected NI which you also won't pay, so for lower end earners that's 11%, for higher earners 1%.

Simon

sc999cs

My company will not extend the agreement. Instead the bike is sold to you for 5%, and the other 20% is taken as a taxable benefit.

So on a £600 bike you'd pay

£50 a month before tax but deduct 20% / 40% depending on tax band -> £10 /. £20 deduction and then deduct NI - assuming 11%, but depends on pension arrangements = £5.50 So total monthly payment is £35 / £25 per month (approx) Total cost £420 / £300

After 12 months you buy the bike for 25% fmv or £150.
However you only pay 5% of the original value which is £30 and the balance £120 is seen as a taxable benefit so is taxed. So you pay either £24 or £48 depending on your tax band.

Total cost Lower Rate £420+£30+£24 = £474 or a saving of £126.
Total cost Higher Rate £300+££30+£48 = £378 or a saving of £222.

There may be a VAT saving too.

It does of course depend on how your company implements the final stage where you buy the bike from them.

shouldbeinbed

Pal of mine was paying £35 over 12 months for his £600.

pdw

You need to check with your company, as the savings can vary significantly between different schemes.

They should be able to tell you exactly how much you will pay each month, although they can't commit to a final sale figure (or even to selling you the bike at all). They should be able to give you an example of what you might pay in the (very likely) event that they do sell it to you.

You should also check if there are restrictions on where you can buy from, and if it uses a voucher system, in which case you may not have access to the best deals.

gadgets

+1 to what others have mentioned with regards to checking with your C2W administration for details specific to your company's C2W scheme. One thing not mentioned is that some companys can reclaim VAT and may pass this on to you.

I have just received my £999.99 voucher from cyclescheme and the paperwork from payroll where they show of a reduction to my salary for £833.08 for one year. The £833.03 reduction is spread out over a 12 month period before taxes. Once the 12 months is up, I have the option to purchase the bike outright for a fair market value or continue to lease the bike from CycleScheme for a small fee. I would have to agree this once the 12 months is up.

The key thing to remember is that during this period, you do not own the bike. The company is leasing is to you for 12 months and CycleScheme for the extended period.