CycleScheme - Is it worth it?

alimcphail81

Hi!
I have recently scored a new permanent job and my employer offers CycleScheme. Is it worth doing? I have read a lot of blurb about it and articles on Bike Radar and other sites but I would really like the opinion of someone who has actually got a bike this way.

Thanks in advance

peat

For starters, i think you have to be out of your probationary period (3 months or whatever is stipulated in your contract).

My company don't do the C2W scheme, they do their own bike buying tax dodge (its a small company, they have only had to do it for 1 person before). Having read all the blurb, i can't help but feel skeptical on some level.

Some people i know think its great, some call it a scam.

CyclingObsession

It is a only worth it if you spend a lot on a bike and are in the higher tax bracket, if u r not it is only worth it because u do not have to pay a grand for a bike upfront u get to pay it over 12 months. I think also u can only do the bike to work every 5 years, I am not sure on that. I have done the bike to work got a savage bike for less than it was without, so any saving is great

CiB

The answer above is wrong so discard it.

You can take out a new cyclescheme agreement every 12 months - I believe only one can be in existence at any given time but the 5 year gap is not true, unless it's been added recently with no fanfare.

Is it worth it? Yes but not as much as it used to be. Your max is £1000 unless your employer has a credit licence and is willing to advance more, but £1000 is the norm hence the preponderance of bikes at or just under that amount.

Your contributions are paid net of tax & NI so you save that way, plus if your employer is able to reclaim the VAT and is willing to pass that saving on you see that reduction. Clearly a higher rate tax-payer will see an increased benefit over normal rate payers.

At the end of the scheme it used to be that for a nominal fee of a fiver you took ownership of the bike; it's now a ratio of the original value around 25% but that varies depending on the purchase price - you'll be able to find this quite easily. This final payment can be avoided by deferring ownership for 1 or more years as the final payment reduces to zero over 3 years. If you're willing not to take formal ownership at the end of the initial 12 month period the final payment will be lower.

Is it worth it? Yes. Is it life changing and do you get a top spec bike for next to nothing? No.

inkz

You pay 10% more for the bike because this is what Cyclescheme charge the retailer.

If you get a £1000 bike then that's a £100 you are overpaying (you are getting a £900 bike). Your payments are then split over 1 or 2 years. My company does it over 2 years. You then pay 7% to buy the bike.

Let's say for the average person you are saving 32% by using cycle scheme. Add back in the 10% you are over paying and the 7% you bought the bike for and you are now only saving 15% off the original value. You are also paying it off interest free over one or two years.

Yes it's definitely worth it but the savings aren't as big as you might originally think.

RufusA

CiB wrote:

... plus if your employer is able to reclaim the VAT and is willing to pass that saving on you see that reduction.

Sadly HMRC "clarified" the treatment of VAT on salary sacrifice schemes such that the employer has to now charge VAT on the rental cost of the bicycle, and the disposal amount:

http://www.cyclescheme.co.uk/employers/ ... te-summary.

RufusA

InkZ wrote:

You then pay 7% to buy the bike.

The 7% is only available under Cyclescheme as part of their extended hire period. In essence, at the end of 1 year you pay 7% "deposit" to Cyclescheme. The bicycle ownership at this stage passes to Cyclescheme.

At the end of the 4th year, Cyclescheme will sell the bicycle to you for the deposit amount.

Worth remembering that for the first 4 years, the bicycle isn't yours, so you can't sell it, and depending on the T&Cs you may not be able to extensively modify it, and have to keep it insured for its full replacement value.

You have to trust that Cyclescheme will be around in 4 years - there is no guarantee that you will get ownership at the end of this period.

This probably won't suit many people, unless you are certain the bicycle is a keeper and will survive 4 years of hard commuting!

daddy0

Peat wrote:

For starters, i think you have to be out of your probationary period (3 months or whatever is stipulated in your contract).

My company don't do the C2W scheme, they do their own bike buying tax dodge (its a small company, they have only had to do it for 1 person before). Having read all the blurb, i can't help but feel skeptical on some level.

Some people i know think its great, some call it a scam.

Yeah, when you look into it then its not so great. Especially now you have to pay the VAT. But then you're also paying 10% more on the list price of the bike in order for the bike shop to pay the scheme. The schemes are making £100 for every £1000 bike sold and all they're doing for this money is filling out a bit of paperwork.

The other bad thing about the schemes is that the people who earn the most and therefore pay the higher tax rates benefit more than people who earn less. I think that's topsy turvy!

Peat - how does your company's own scheme work? I am in a similar situation and I'm trying to work out the ins and outs... Ta!

alimcphail81

Well, I think I'm more confused than when I originally asked the question.I am tempted as I will be able to get it almost immediately but I don't like the idea of having to pay the 25% FMV at the end of 12 months or continuing in the scheme for longer than I need.

I have used a cyclescheme calculator, it suggests that based on my circumstances and the cost of the bike I should be able to save £208 on the cost of a £650 bike, paying £36.86 net per month. Fine, but if the FMV is 25% on bikes over £500 does that mean that I will end up paying £160 odd after the 12 months as well? That would give a saving of less than £50, hardly worth the hassle

Also, I am fortunate that I have already been in my job for 10 months but the equal opportunity people ensured that I needed to re-interview for it to be made permanent so the probationary period shouldn't be a problem.

Cheers for all the responses!

craker

Don't worry too much about the final valuation - you can purchase 4 more years of hire for 7% of the purchase price (>£500 bike) and you will hear no more from your employer,the taxman or cyclescheme.

Unless you want interest free finance I wouldn't bother though. I was interested in a folding bike recently, the bike shop declined to offer it on cyclescheme at their discounted price but wanted catalogue price - £55 more. By return of email I politely told them where their folding bike could go...

YIMan

You are not paying 10% more than the "list price" to buy the bike. Ok, retailers are highly unlikely to sell you a bike at a discounted price because of the Cyclescheme cut.

I got a Genesis Vapour on Cyclescheme. It's a £1000 bike. I paid £1000. You can probably get it elsewhere discounted for £900 or less if you want to pay all the cash upfront from your net pay.

But I'll only pay net something like £700 for it, spread out over 12 months so I'll barely notice it. My aim is to save enough (petrol costs) commuting to make it cost neutral over the year. At the end of the year I'll either send it back and try something else, or make the commitment to keep it another 3 year for small beans. Or I'll buy it for £250. It works for me anyway - low, spread-out cost and plenty of options. I just wish you could spend much more than a grand.

FJJ

Just a clarification on the FMV payment, it's added to your P11D as a benefit in kind so you pay tax on the value of the FMV.

RufusA

FJJ wrote:

... it's added to your P11D as a benefit in kind so you pay tax on the value of the FMV.

True, that is an option, you don't pay the "25%", you just get taxed on the benefit of being gifted a bike worth 25% of it's purchase price i.e. 21% or 40% tax on £250 (for a 1k bike).

Similarly a decent employer will take account of the fact that you may be paying them 25% of the price, so just charge you "rent" on the notional 75% over 12 months.

Sadly Cyclescheme seems reluctant to push these points, no doubt interested in gaining another 7% FMV on top of their 10% admin fees!

Rufus.

daddy0

Its so blooming confusing.

So, you guys who know how it all works - what is the best way for me to buy a £1000 bike if I pay 21% tax, and work for a small friendly company who are willing to do their own scheme independently of any of the official ones? The company are willing to buy the bike and then have me pay them back in the most tax efficient way - but how should this actually work? I have tried to get my head around it but I've ended up more confused that when I started....

matty1974

I can only talk about my experience with Cyclescheme & on my recent order, I certainly wasn't charged an extra 10% that a couple of posters here refer to.

My understanding is that Cyclescheme charge the retailer a 10% Admin Fee. The bike shops margins would probably determine whether they are willing to let you do a Cyclescheme purchase on an already discounted bike (None of the smaller shops I visited would but Evans did). Other schemes may operate differently.

Unless I've completely miscalculated / misunderstood , I thought it seemed like a pretty good way of funding a bike. Appreciate the issues such as losing your job & the bike not actually being yours straight away but if you're intending on paying the extended use payment, I worked out that I save 25%. on a new bike with interest free payments.

However I ended up paying full RRP on everything so I suppose if I had got an interest-free credit card & found the cheapest deals on each item, I probably could have spread the cost that way & got it cheaper. This just seemed like a lot less hassle as it goes straight out of salary.

Depending on your circumstances, I'm sure that this scheme could work well but not so for everyone.

Rufus : sorry can you explain your point on the P11D again? Isn't that only applicable if you pay the 25% FMV? If I pay Cyclescheme the extended use payment, isn't that the end of the payments?

Matt

RufusA

matty1974 wrote:

Sorry can you explain your point on the P11D again? Isn't that only applicable if you pay the 25% FMV? If I pay Cyclescheme the extended use payment, isn't that the end of the payments?

The P11D is only applicable if you DON'T make any payment!

At the end of the year there are essentially 3 options:

1) The company gifts you bike - in which case HMRC will want you to pay tax on this benefit in kind, so 25% of the bikes cost gets written on your P11D, and HMRC will adjust your tax code the following year to extract tax on that 25%. i.e. on a £1k bike the BiK is £250, so you'd pay HMRC £53 (21% of £250) as a basic rate tax payer.

2) The company sells you the bike after one year - at FMV you pay 25% to the company and HMRC don't get involved. i.e. you pay £250 on a £1k bike (a lot more than option 1).

3) The company gifts the bike to a third party (Cyclescheme), who then may sell you the bike after another 3 years for 7% of the value. So for a £1k bike you pay Cyclescheme £70 and can't sell it for 4 years.

IMHO for most people option (1) is the best, the bike is yours after a year, and you don't pay the full 25%!

Rufus.

FJJ

It's probably worth mentioning that the Halfords scheme is really good value - although some may not want to deal with Halfords!

My company uses that - there is no admin charge of 10%, in fact they give you an extra 10% on top of the LoC value to spend on accessories, they also let you take advantage of any offers - I got £70 off my Boardman CX Team in their 'Spend and Save' offer and they gave me 10% off everything with a British Cycling voucher. A fantastic deal in my opinion!

The method of payment is that you pay 90% of the value of the LoC over one year (so £75 per month off your gross salary on a £1K LoC), you can then opt to take ownership for a payment of 10% of the LoC value (£100 in this example), this is then deducted from the 25% FMV (£250) which is then added to your P11D to pay tax on (£150 added to P11D).

One thing that isn't covered by the Halfords or I believe the CycleScheme that would be beneficial with your company running it's own scheme is that I believe according to HMRC rules that the FMV is for the bike and that any accessories / clothing are effectively written off in the year. This would be beneficial in lowering the FMV if you were, for example, purchasing a helmet and some decent waterproofs at the same time - e.g. £750 bike and £250 of clothing.

dav1

If I take £1000 from my work and top it up with £1000 of my own cash how is the final value done?

My assumption is that the final value will only apply to my employers £1k rather then the total value. Is this correct?

supersonic

You cannot top it up, the scheme does not allow it.

RufusA

supersonic wrote:

You cannot top it up, the scheme does not allow it.

+1

Cyclescheme prohibit top-up, and any bicycle shop caught bending the rules will get kicked out as they want their 10% on the full amount!

Any dual ownership of a bicycle is problemantic because it introduces the presumption that the employee will take final ownership and renders the agreement a hire purchase (taxable) and not a loan (tax exempt).

Some schemes may turn a blind eye to it, but if the HMRC investigates, they will expect the tax and NI avoided to be paid, and may introduce penalties depending on whether they feel there was intent to avoid!

That's not to say that it isn't impossible to purchase or upgrade removable items (such as wheels, saddle etc.) separately from the main bicycle loan with a suitably understanding LBS

Rufus.

peuan

In my personal experience I didn't save anything really. I got a £300 bike with a £400 voucher (the bike had been discounted when I went back), the £100 being spent on a mudguards, spares and a £50 lock. The lock I had to get to be covered by the insurance. I also had to pay for insurance. Part of the terms and conditions I think I remember.

However the new HMRC valuation guidance that came out during the period, meant I was left with a £75 transfer fee (having expected it to be peanuts), which my company kindly paid (and is know on my P11D).

So roughly, the whole deal cost me about the same as the original price of the bike. Therefore, I could of just walked in with 300 notes, and had none of the hassle of buying a new lock and getting insurance.

However, in retrospect, I wish I'd gone to the max £1000 we were allowed. I would have spent more but saved more, and had I'd the option to write the final transfer fee down over a few years I still think its a good deal and helps spread the cost.

Our company has stopped it now. So if I was looking for a new bike, I'd try and get last year's heavily discounted (ex-demo) model on cheap finance, and just keep doing that every couple of years.

The Rookie

FJJ wrote:

One thing that isn't covered by the Halfords or I believe the CycleScheme that would be beneficial with your company running it's own scheme is that I believe according to HMRC rules that the FMV is for the bike and that any accessories / clothing are effectively written off in the year. This would be beneficial in lowering the FMV if you were, for example, purchasing a helmet and some decent waterproofs at the same time - e.g. £750 bike and £250 of clothing.

So forget the bike, 'buy' a £100 (or less) BSO and max out on the 'accesories' which you get the full tax/ni benefit off AND have no FMV.

Just go buy a decent bike!

As has been stated it depends very much on what the scheme you would have to use does at the end of the year that determines whether C2W is a 'saving' or a 'break even with a years interest free credit' or half way between the two (gift bike, pay tax on benefit).

sketchley

The Beginner wrote:

FJJ wrote:

One thing that isn't covered by the Halfords or I believe the CycleScheme that would be beneficial with your company running it's own scheme is that I believe according to HMRC rules that the FMV is for the bike and that any accessories / clothing are effectively written off in the year. This would be beneficial in lowering the FMV if you were, for example, purchasing a helmet and some decent waterproofs at the same time - e.g. £750 bike and £250 of clothing.

So forget the bike, 'buy' a £100 (or less) BSO and max out on the 'accesories' which you get the full tax/ni benefit off AND have no FMV.

Just go buy a decent bike!

As has been stated it depends very much on what the scheme you would have to use does at the end of the year that determines whether C2W is a 'saving' or a 'break even with a years interest free credit' or half way between the two (gift bike, pay tax on benefit).

Hmmm.. It's only saftey equipement that is covered under cycle sceme, helmets, lights that kind of thing.

The Rookie

Safety equipment is
Cycle helmets which conform to European standard EN 1078
Bells and bulb horns
Lights, including dynamo packs
Mirrors and mudguards to ensure riders visibility is not impaired
Cycle clips and dress guards
Panniers, luggage carriers and straps to allow luggage to be safely carried
Child safety seats
Locks and chains to ensure cycle can be safely secured
Pumps, puncture repair kits, cycle tool kits and tyre sealant to allow for minor repairs
Reflective clothing along with white front reflectors and spoke reflectors

So waterproofs as long as they are reflective....easily spend £910 on that lot to go with my £90 BSO!

I find bells ironic as they are a legal requirement on a bike sold new anyway!

(source http://assets.dft.gov.uk/publications/c ... idance.pdf - noting that that document also includes safety equipment in the 'equipment')

sketchley

Somone asked about small companies. We decided not to use a scheme as it was restrictive as to where the bike came from and just added complications and time to the process. For example it might take a few weeks to get the vouchure once applied while the company seek payment. Cyclescheme seemed to just add cost to the employee and while it removed some admin for the company, for a small company like ours this saving was small.

This is what we do, for reference I help admin it, feel free to ask questions.

We downloaded the forms from a well known retailer and made our own versions of them including the all importnant hire agreements and put them on our intranet. The hire agreement, for us, is five years with the first year being 1/12th of the amount less VAT per month and zero per month for the remainder. The company own the bike for the whole five year period but the employee pays nothing after a year. The only issue here is if the employee leaves the company, in year one they have to pay a "disposal fee" equal to the difference between what they have paid to date and the original cost of the bike (+vat), outside of the first year they have to cover the tax liability based on FMV if we decide to sell them the bike that is. Note this is always less that amount of tax you would have paid had you brought the bike without the scheme. There is nothing stopping an employee getting a second bike in year two, third in year three, except the rule that states the primary use of any bike under the scheme is commuting. Obviously with more bikes it entirely possible that HMRC will take the view that not all the bikes are used for commuting.

The employee wanting the bike then goes to any shop they choose and a director simply pays for bike and saftey accessories on a company credit card up to £1000 and gets an invoice made out to the company. The employee then fills out the forms (same as anywhere) and gets the bike immediately. Payroll department are then instructed to deduct the amount via salary scarifice, we outsource payroll and this was not a problem for the oustource company no questioned asked they just did it, and it shouldn't be a problem for anyone running payroll if they know what they are doing.

As of this Jan this year we had to add vat to to hire amount :0(

Hope this helps.

pdw

Daddy0 wrote:

Its so blooming confusing.

So, you guys who know how it all works - what is the best way for me to buy a £1000 bike if I pay 21% tax, and work for a small friendly company who are willing to do their own scheme independently of any of the official ones? The company are willing to buy the bike and then have me pay them back in the most tax efficient way - but how should this actually work? I have tried to get my head around it but I've ended up more confused that when I started....

1. Company buys bike for £1k
2. Company rents bike to you for 12 monthly payments of £83. These are paid as a salary sacrifice, so the net cost to you is lower.
3. Wait a few years
4. Company offers to gift the bike to you. You accept. If they waited less than 5 years from the original purchase, that gift constitutes a taxable benefit, and you need to pay some tax on it. To work out the value of the benefit, see http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm . Your payroll person should know how to account for this correctly. For example, after 3 years a £1k bike is worth 8% = £80. You'll owe about £25 tax on that.

You ought to sign a rental agreement - a number of the big online retailers have sample paperwork that you can borrow.

You pay 12 x £83, but as it's paid out of pre-tax salary, you're saving 20% income tax and 12% NI, so you effectively pay £680, plus the tax on the final benefit (around £25 after 3 years) so you'll pay about £700.

It's worth noting that the company also saves money because it doesn't pay employers' NI of 13.8% on the salary that you sacrificed. There's no reason why it can't pass this saving onto you in the form of reduced monthly payments.

In fact, there's no requirement that the company breaks even on the deal at all. If your company is particularly friendly it can just buy a bike and let you use it (primarily for work purposes), and this isn't considered a taxable benefit.

sketchley

As far as I know. There's also nothing to say the "rent" has to be 1/12th of the value of the bike for a year. The company buys the bike and rents it you, they can set whatever rent they wish.

The Rookie

Sketchley wrote:

As far as I know. There's also nothing to say the "rent" has to be 1/12th of the value of the bike for a year. The company buys the bike and rents it you, they can set whatever rent they wish.

In which case logic suggests they deduct the FMV, so £1K bike, pay 1/12th of £750 over the year, pay £250 at the end (could even add a savings scheme in so it's saved ready, so empoyer pays 1/12 of £250 in addition) and the employee has the bike there and then, no faffing. May of course be a taxable benfit in kind, but as the employee pays £1K for a £1K bike it's hard to see any benefit, they won't be able to salary sacrifice the 'saving' though.

jimmocrates

I applied for the cyclescheme in June for a Giant Defy (£999) from Edinburgh Cycles. My application came through quickly - the quote for the monthly deductions would have seen me paying back way over £1000 (net). I phoned the company to query it. They confirmed that there is an admin type fee which is added on. They pointed out that even with this, I would have made a decent saving (22-24%) by the time tax+NI were taken into account.
HOWEVER, due to the uncertainty about the whole scheme in terms of final fee to buy the bike outright at the end of the hire period and losing any benefits if I changed job, I bought the bike in the summer sale instead (15% off). The savings no doubt were less than I could of had, but I felt I knew where I was with the price paid.

pdw

The Beginner wrote:

Sketchley wrote:

As far as I know. There's also nothing to say the "rent" has to be 1/12th of the value of the bike for a year. The company buys the bike and rents it you, they can set whatever rent they wish.

Isn't that what I said?

In which case logic suggests they deduct the FMV, so £1K bike, pay 1/12th of £750 over the year, pay £250 at the end (could even add a savings scheme in so it's saved ready, so empoyer pays 1/12 of £250 in addition) and the employee has the bike there and then, no faffing. May of course be a taxable benfit in kind, but as the employee pays £1K for a £1K bike it's hard to see any benefit, they won't be able to salary sacrifice the 'saving' though.

You could do, but you'd be better off paying £1k over the year, have the company gift the bike to you and pay the tax on the £250 benefit. You'd be better still to defer the transfer of the bike for a few years

What you describe wouldn't incur any taxable benefit (because you pay FMV to transfer the bike) but it's certainly not the most efficient way to do it.

The fact that you paid "£1k for a £1k bike" is completely irrelevant. What matters is that any fee paid to transfer ownership is done at fair market value, and is paid out of your net salary, as there is no tax break available for buying bikes from your employer.

daddy0

Hey guys

Just wanted to say many thanks for all your inputs! I have suggested to the directors that they just buy me the bike and I hire it for £1 a month then pay the FMV tax at the end... Will see if they go for it. If not I'll have to basically pay back the companies costs which will still be a lot less than the normal schemes. Shame I couldn't get this sorted out sooner though - I missed out on a Felt F5 for under £1000 at Wiggle