Cyclescheme

Cool, thanks. (You dick).

.

You save 32% (tax and NI) in the first year but then, at this point, the bike still belongs to the company.

They can't give it to you because it'd be a benefit in kind and therefore taxable (and no different to you just paying for the bike in the first place), so you've got two main options (the third is giving the bike back but that's insane given you've paid 68% of its value already):-

a) Buy the bike outright for 18% or 25% of its market (18% for a certificate up to £500, 25% for an original certificate of £500 or more).

So for a £1000 bike that'd be a saving of 7% plus the bonus of paying for the bike in 0% interest monthly payments spread over a year.

b) Pay a 3% or 7% deposit (3% for a certificate up to £500, 7% for certificate of £500 or over) and make no further payments for another 3 years. After those 3 years the bike has depreciated in value to the value of this deposit, and so you can now use this deposit to buy the bike off the company. (If you leave the company earlier than this then you'll need to pay more to buy the bike off them, see below.)

So for a £1000 bike you'd pay the original 68% for the bike and another 7% for this (non-refunded) deposit meaning you pay 75% all in all and so save 25%.

This does mean you have to stay at the company for all 4 years though. If you leave after 2 years then the bike will not have depreciated to the deposit value (it's 13%/17% based on whether the voucher was for less than £500 as before).

HMRC table:-

12 months: <£500=18%, else 25%
18 months: 16% 21%
2 years: 13% 17%
3 years: 8% 12%
4 years: 3% 7%

So for a bike of £1000 the costs/savings are based on how long you stay at the company:-

less than 12 months and you have to pay the remaining monthly payments out of taxable salary, you might even end up paying more for the bike if this happens!
12 months (from original purchase): 68%+25% = 93% so 7% saving
18 months: 68%+21% = 89% so 11% saving
2 years: 68%+17% = 85% so 15% saving
3 years: 68%+12% = 80% so 20% saving
4 years: 68%+7% = 75% so 25% saving

http://www.cyclescheme.co.uk/help/faqs/end-of-hire

Why thank you!

Also, there are a few complications such as the "value" banding (<£500 or £500>=) is based on the value of the bike and accessories, but not the helmet cost. So a £490 bike, a £20 lock and a £50 helmet would have an "equipment value" of £510 (the bike and lock).

If you can keep the cost of everything except helmet down to under £500 then it makes it a much better deal. If you had a £550 voucher to spend then £490 bike, £20 lock and £40 helmet is going to end up costing you a lot more than a £490 bike, £60 helmet and paying for the lock separately in cash.

To put this into real numbers:

£490 bike, £20 lock and £40 helmet.

£550 voucher (but £510 of it "equipment" and £40 is helmet) and so you pay £374 over the first 12 months (that's post tax, how much less you get in your pocket)

12 months: 25% of £510 = £127.50, so saving is £550-£374-£127.5 = £48.50
18 months: 21% of £510 = £107.10, so saving is £550-£374-£107.1 = £68.90
2 years: 17% of £510 = £86.70, so saving is £550-£374-£86.70 = £89.30
3 years: 12% of £510 = £61.20, so saving is £550-£374-£61.20 = £114.80
4 years: 7% of £510 = £35.70, so saving is £550-£374-£35.70 = £140.3

Now a £490 bike and £60 helmet, still a £550 voucher but "equipment value" is under £500 now. Also subtract the £20 in cash for the lock from the savings made.

12 months: 18% of £490 = £88.20, so saving is £550-£374-£20-£88.20 = £67.80
18 months: 16% of £490 = £78.40, so saving is £550-£374-£20-£78.40 = £77.60
2 years: 13% of £490 = £63.70, so saving is £550-£374-£20-£63.70 = £92.30
3 years: 8% of £490 = £39.20, so saving is £550-£374-£20-£39.20 = £116.80
4 years: 3% of £490 = £14.70, so saving is £550-£374-£20-£14.70 = £141.30

So, big difference after 12 months but then the saving trails off, but still always better to keep the equipment cost down under £500 in this case.

Why thank you!

Hold on, I need to edit it as I forgot to factor in VAT on the end-of-hire payment.

Nevermind, VAT already covered in the above calculations. All good (I think).

starts planning new tourer

If I can do components only, 500 is doable... Need to have a chat with Brixton.

If they did just give it to you (or charge a nominal fee that isn't in the above table), surely you would only pay the tax on the depreciated value and not the full depreciated value?

In theory, the company can rent the bike to you at any rate it sees fit - not just after the first year of ownership, but from the initial purchase point too.

In practice, this probably doesn't happen - definitely not if one of the scheme administrators is involved, and unlikely if the sachem is administered directly, unless the company is very generous.

Ours is run though cyclescheme but the company literature around it states that after 12 months we can buy it from the company for a fixed (low) cost...

Ours is run though cyclescheme but the company literature around it states that after 12 months we can buy it from the company for a fixed (low) cost...

That used to be the way it was done (that's how I paid £88 to buy a bike bought with a £1500 voucher after just 1 year, but that was 6 years ago), but HMRC decided that that represented too much of a benefit and that the asset had to depreciate properly otherwise a larger payment would be due.

Most schemes continue to get away with the older way of doing it because the amounts concerned are way too small for HMRC to go chasing within each and every company. Sort it out for future schemes and leave the existing ones as they are.

Although it does look as if the Extended Use Agreement has nothing to do with your employer so it doesn't matter if you leave and will have still saved a fair whack... 25% if my calculations are correct!

Ah ok fair enough, well I guess I'll find out at the end!

This does mean you have to stay at the company for all 4 years though. If you leave after 2 years then the bike will not have depreciated to the deposit value (it's 13%/17% based on whether the voucher was for less than £500 as before).

Is this the case? So far as I can see, my extended use period (years 2-4) is with Cyclescheme, not my company. This is the T&Cs from my Agreement. Section 8 seems to cover it.

Extended Use Agreement

IMPORTANT: You must read this carefully. This agreement details your
rights and responsibilities and is legally binding upon you. You are
strongly advised to obtain independent advice on any aspect of this
agreement you are unsure of.

Terms & Conditions

1.0 Introduction

This Extended Use Agreement ("Agreement") is in two parts: the front
page setting out various items of key information and the second page,
these terms and conditions, which sets out the basis on which
Cyclescheme Limited will allow you to have continued use of the
bicycle and (if applicable) safety equipment hired by you previously
under a Hire Agreement with your Employer (the "Equipment") for the
main purpose of commuting between your home and workplace, or between
different workplaces in connection with your employment ("Commuting").

2.0 Eligibility for Tax Benefits

The intention is that by entering into this Agreement you will be
entitled to retain possession and use of the Equipment but without
ownership of the Equipment transferring to you. You are required to
continue to meet the following conditions in order to benefit from the
use of the Equipment under this Agreement: •Subject to section 6.0,
you are still in possession of the Equipment you originally hired from
your Employer; •You must use the Equipment mainly for Commuting,
although you are entitled to use it for other purposes as well;

If any of these conditions are not or cease to be satisfied, or the
law changes, you may find that you are no longer eligible to use the
Equipment unless you wish to purchase it at the market value
determined in accordance with HMRC guidelines in force at the time. It
is your responsibility to inform Cyclescheme.

3.0 Salary Sacrifice and Extended Use Period

By signing the Agreement and paying the Continuation Deposit (as
detailed on the front page) you agree to use the Equipment for a
further continuous period of 35 months from the date set out in the
'Duration of Extended use' section of the Agreement (the "Use
Period"). In return for Cyclescheme agreeing to allow you to continue
using the Equipment for the Use Period, you agree to continue to use
the Equipment mainly for commuting. No additional salary sacrifice
reduction or rental payment is required from you under this Agreement.

At the end of the Use Period, Cyclescheme will contact you to discuss
what will happen to the bicycle. You may be offered the opportunity to
take ownership of the Equipment at the market value (to be established
at the time in accordance with HMRC guidelines). Otherwise, you will
be required to return the bicycle to Cyclescheme at your own cost, to
the address notified to you by Cyclescheme. Upon the safe return of
the bicycle, Cyclescheme will return your Continuation Deposit.

If at any time you are required to return the bicycle but fail to do
so, you will forfeit the right to a refund of your Continuation
Deposit.

4.0 Your responsibilities

During the Extended Use Period: •The Equipment remains the property of
Cyclescheme and you may not profit from, transfer, sell or otherwise
dispose of the Equipment; •You must retain possession of the Equipment
and use it mainly for Commuting, although use for other secondary
purposes is permitted (excluding competitions and dangerous
activities); •You will continue to be responsible for any loss of or
damage to the Equipment which subsequently occurs, except where this
is caused by a defect in the Equipment - (see section 5 - Defective
Equipment) therefore we recommend that you continue to insure the
Equipment; •You must ensure the Equipment is used safely and
maintained properly in accordance with any instructions provided by
the manufacturer(s) of the Equipment and/or by the relevant
Cyclescheme Partner Shop (where the Equipment was originally
collected).

5.0 Defective Equipment

The Equipment may be covered by warranties given by the relevant
manufacturers (or their importers), as well as by any additional
warranties that apply under the general law and nothing in this
Agreement affects the rights that you have under the general law.

If Equipment becomes defective as a result of your misuse or neglect
you will be responsible to bring the bicycle back to good working
order.

If any defects or other warranty issues subsequently come to light,
please contact the relevant Cyclescheme Partner Shop in the first
instance.

6.0 Lost, stolen or damaged Equipment

If at any time during the Extended Use Period, the Equipment (or part
of it) is lost or stolen, or damaged to the point of no longer being
usable for Commuting, you should contact Cyclescheme immediately at
the address shown overleaf under "Parties to agreement". Please note
that if you do not replace the Equipment you will forfeit the right to
a refund of your Continuation Deposit.

You are strongly advised to obtain specific insurance for the
Equipment, or otherwise ensure it is covered by your home contents
insurance policy. You must inform your insurer that Cyclescheme has an
interest in the Equipment.

Please note that as long as you purchase any replacement equipment
following the theft or loss of the Equipment you originally obtained
under the Hire Agreement (with your employer) that replacement
equipment will be covered by the terms of this Extended Use Agreement
provided you continue to use the Equipment in accordance with section
2 (Eligibility) above.

7.0 Absence from work

If you are absent from work during the Use Period the Agreement will
remain in place until the 35 month extended Use Period has expired.

8.0 Leaving your employment

If you leave your employment for any reason during the term of the
Extended Use Agreement, the Agreement will remain in force until its
expiry as long as you continue to meet the eligibility criteria as
detailed in section 2.0 Eligibility, but you must inform Cyclescheme
of any change in circumstance.
9.0 Data Protection

By entering into this Agreement, you will be authorising Cyclescheme
to use personal information about you to the extent necessary to
administer the arrangements described in this Agreement. The Data
Protection Act 1998 will apply to that information.

10.0 General

Cyclescheme will not have any responsibility under this Agreement if
it is delayed in performing, or fails to perform, any of its
obligations under this Agreement as a result of any circumstances
beyond its reasonable control. Further, at no time shall Cyclescheme
have any liability to you for any loss or damage arising other than as
a direct result of its actions or omissions.

It is your responsibility to adhere to both the Road Traffic Act and
the Highway Code as standards whilst using the Bicycle and (if
applicable) safety equipment.

Cyclescheme intends to rely upon the written terms set out in this
Agreement. No variations will be permitted without out prior consent.

This Agreement is governed by English law and any dispute arising
shall be dealt with in the exclusive jurisdiction of the English
Courts.

CS EUA V1.0.3

This may only relate to Cyclescheme and is from a few years ago so it could have changed.

Well, yes, that's the nub of the scheme.

You're not buying the bike. The company is buying a bike and then letting you borrow it for free. At some point you should want to buy the bike off the company, and so the fair price for this is based on asset depreciation (according to rules set out by HMRC).

But to begin with, since companies don't just buy bikes for people to use like this they need to have the money to buy the bike upfront and so they get the employee to agree to being paid less for a year to cover the cost of the bike that they will be borrowing. This works out cheaper for the employee than waiting to get the money (after tax) and buying the bike themselves. The company does end up paying for the whole bike up front and only slowly recouping that money over the space of a year, but it's a small price to pay for healthier and happier employees. The company also saves employer NIC contributions that would have been due on this extra pay, so it (the company) does save something extra too.

Leaving the scheme before the end of the first year could be bad, I'll have a go at working out the numbers in a sec.

I think it's just Cyclescheme administering it on behalf of your employer. I can't see how the asset (the bike) could be transfered to Cyclescheme in a way that they could continue to make money out of it otherwise.

[EDIT] Actually, I guess Cyclescheme just hire it from your employer in the same way that you do for the first year. At any point after that Cyclescheme have an option to buy it from your employer (if you want to) at the price determined by the HMRC tables, and are then free to sell it on for that same value to you. That keeps it all clean and easy for the employer. Cyclescheme have already made their money out of the cut of the original voucher price (the bike shop only receives 90% of the voucher value I believe).

[EDIT2] Seems to be backed up by http://www.cyclescheme.co.uk/employers/employer-updates/hmrc-update

"9. If the employment status of a scheme participant changes, what happens?

During the initial hire period, if Cyclescheme are notified of a change of employment status, we will contact the employee with their end of hire options at the point we are informed.

During the extended use period, the employer has no responsibility to contact Cyclescheme, as the agreement is between Cyclescheme and the employee. If the employee changes jobs the agreement is still valid."

So you just need to stay in your job for the first 12 months. You can then run the Extended Use Agreement with Cyclescheme and not worry about changing jobs.

This is assuming that your employer uses Cyclescheme to do this. There are other schemes (and direct employer schemes too).

Companies can, may and do buy bicycles for employees to use - Much in the same way that they buy cars for employees to use.

As you say, though, many companies don't see the benefit of buying bikes for employees (and actively avoid it, banging on erroneously about Healthy & Safety and inferred liability) and choose to take advantage of the changes to PAYE and NI that the scheme permits - namely financing through salary sacrifice.

Leaving the scheme in the fist year would be a contractual issue on a hire purchase agreement - You could walk away with nothing, and pay nothing.

It makes it fairly clear in a number of places that Cyclescheme own the bike e.g.

By signing this Extended Use Agreement you agree to continue to use the Equipment (which is owned and made available to you by Cyclescheme)

but I'm not sure how this happens.

The irony on all of this is that it's not much different to the ways that companies try and avoid (not evade) paying certain taxes, or limiting their liabilities. It's just on a smaller/individual scale under the guises of "good intentions".

Think of it this way: You're taking a (smaller) temporary pay cut so that the company can buy a bike for you and then lend it to you for free. After a year they then lend it out to a third party company that also lets you borrow it for free (after giving them a 3% or 7% deposit). After 3 years you let this other company keep the deposit (so they can officially buy the bike off your employer) and you get to keep the bike. Everyone saves/makes some money, therefore the tax man is not getting as much.

The government could make this all so much easier by scrapping these schemes and just getting rid of VAT on all cycling related stuff (even top end bikes).

but I'm not sure how this happens.

See my edits above. I guess Cyclescheme hires it from your employer (for free) so the extended use agreement is with Cyclescheme and it officially (temporarily) owns the bike. At the end of the extended use agreement you agree to buy the bike, Cyclescheme officially buys it from the employer (for the HMRC regulated price) and then you buy it from Cyclescheme for the same amount.

The irony on all of this is that it's not much different to the ways that companies try and avoid (not evade) paying certain taxes, or limiting their liabilities. It's just on a smaller/individual scale under the guises of "good intentions".

Hardly the same as it's a scheme set up by the government to encourage people to cycle rather than something invented by a dodgy accountant to save a millionaire from paying their fair share of tax.

The government could make this all so much easier by scrapping these schemes and just getting rid of VAT on all cycling related stuff (even top end bikes).

If they did this the government would lose 20% tax on every bike sold rather than approx 25% on Cycle to Work purchases only.

Could be.

In terms of buying the bike at the end of the extended use period, you actually pay that at the start of the period (i.e. after one year) and it's held over until the end. So at the end of year 1 you pay the 7% of value (assuming it's worth over £500) and nothing at the end of year 4.

Can't the [VAT registered] employers claim back VAT anyway, even though they can't pass the saving on the the employee? The employer effectively makes money out of the scheme.

If they did this the government would lose 20% tax on every bike sold rather than approx 25% on Cycle to Work purchases only.

It costs the HMRC to create the guidance and for the extra work in checking/policing the scheme.

Knocking 20% off all bikes would probably encourage more people to ride and probably result in a net saving for the Government thanks to improved health. etc.