Cycle to work scheme

cant be bothered to explain again, but the short version is since the conservative party is in power C2W is fucked and there are no real savings unless you stay with employer for 4 years, i dont know how they came up with £320 savings

there is an admin charge which you have to pay at the beginning of C2W scheme; which I cant remember correctly but it's something like £60

there is an admin charge which you have to pay at the beginning of C2W scheme with some retailers; which I cant remember correctly but it's something like £60

I think this is what you mean.

The scheme is less efficient than it used to be, but it is still more efficient that any other form of financing for new bicycles.

And for once, it's not the current Government's doing, but HMRC.

^^ yea most retailers plus at the end of 12 months there is a fee to extend the lease which is £70

With Cyclescheme, you don't have to stay with your employer after the 1st 12 months. You effectively sign a new lease directly with Cyclescheme.

Removing the VAT charge does make the savings I calculated above significantly larger - thanks to Mirius and TW2 for clarification

If it helps I can post up the calculation (minus any retailer/scheme provider/employer charge) which shows the amended savings - in short there are savings to be had, they just aren't as big as they once were due to the amendment to the HMRC guidance on the value of the bike after 12 months

yea that lease signing has a fee of £70, so the savings should be more than £70 for a year (plus the admin fee in some cases)

there is an admin charge which you have to pay at the beginning of C2W scheme; which I cant remember correctly but it's something like £60

No there isn't.

You pay it at the end.

In the Cyclescheme version, you pay an amount (based on the HMRC guidance about the disposal value after 4 years - 3% for ,£500, 7% for >£500) after the first 12 months of ownership. You get this back at the end of the 48 months, if you return the bike

So I've got my Excel on, and I think this summarises the position with a £1k voucher, and no scheme fee (levied by retailer/scheme provider/employer)

...yeah so it turns out I can't just paste an excel table into here

screenshot share perhaps?

Value of voucher = £1,000.00

Gross monthly reduction = £83.33
Scheme administration charge = £0.00
Gross monthly charge = £83.33

Value of bike after 12 months (+VAT) £300.00
Value of bike after 48 months (+VAT) £84.00

**Basic rate tax payer **
Income tax saving = £16.67
NI saving = £9.17
Total monthly saving = £25.83

Net monthly charge = £57.50
Annual charge = £690.00

Saving if return bike after 12 months = £310.00 (31%)
Saving if keep bike after 12 months = £10.00 (1%)
Saving if return bike after 48 months = £310.00 (31%)
Saving if keep bike after 48 months = £226.00 (23%)

Higher rate tax payer
Income tax saving = £33.33
NI saving = £1.67
Total monthly saving = £35.00

Net monthly charge = £48.33
Annual charge = £580.00

Saving if return bike after 12 months = £420.00 (42%)
Saving if keep bike after 12 months =£120.00 (12%)
Saving if return bike after 48 months = £420.00 (42%)
Saving if keep bike after 48 months = £336.00 (34%)

Yeah screenshot would have been handy!

1 Attachment

Is your repayment fee at the end of the 12 months really that high? I can't remember mine being that high on my first purchase (800 quid bike) but since then I'm paying off my 1k bike.

so for basic tax payer the savings after a year is £10?

Is your repayment fee at the end of the 12 months really that high? I can't remember mine being that high on my first purchase (800 quid bike) but since then I'm paying off my 1k bike.

Depends on when you did the scheme - it's now 25% of the RRP according to HMRC http://www.cyclescheme.co.uk/employers/employer-updates/hmrc-update (plus VAT apparently)

so for basic tax payer the savings after a year is £10?

Yes, if you choose to buy the bike then (and I'm not sure why you would - once you pass the 12 month mark you are no longer tied to your employer) - see the bottom of this page (Q9) http://www.cyclescheme.co.uk/employers/employer-updates/hmrc-update

The stupid part of this is that there's nothing in the rules that dictates that the monthly "rental" payments have to equal the total cost of the bike. A company could charge you £62.50 per month from your gross pay, then the additional £250 at the end of a year and they'd get back the full £1,000 over the period. By charging £83.33 per month, the company will make a profit from you.

Depends on when you did the scheme - it's now 25% of the RRP according to HMRC http://www.cyclescheme.co.uk/employers/employer-updates/hmrc-update (plus VAT apparently)

Where does it say you have to add VAT?

Your employer can also 'give' you the bike after 12 months, which then means you just pay tax on it (20%, so £50).

The stupid part of this is that there's nothing in the rules that dictates that the monthly "rental" payments have to equal the total cost of the bike. A company could charge you £62.50 per month from your gross pay, then the additional £250 at the end of a year and they'd get back the full £1,000 over the period. By charging £83.33 per month, the company will make a profit from you.

There's definitely a rule saying they can't pass on VAT savings, which would imply they have to recover the full amount. Also there can be no right to buy, otherwise it's a hire-purchase and they need a credit license. Or sutin.

Lardboy is right, there is no rule about how much the monthly payments have to be, nor is there a rule about not giving the VAT back to employees:

Officially the company buys the bike, and then rents you the bike they bought at what ever rate they like (I'm aware of a local council who operate a combination of cycle to work and bike allowance which effectively means employees pay 1p a month for 24 months and then get given the option to buy the bike).

You are right they can not mention before the end of the scheme purchasing the bike, or it becomes hire purchase which is subject to income tax as normal.

The period can be as long as the company/scheme admin likes and then if the company offers the bike to the employee there are specific rules on it's value (relative to age and original cost).

But the schemes run by benefit's companies are more heavily regulated by the tax man, who gives large fines (big enough to cripple the smaller companies) if they think a company is taking the piss. Admin fees are charged by some schemes to employees, and sometimes to shops, but that's not important to the tax man and is not part of the rules of the scheme. A lot of companies that run their own schemes do not charge any admin fee.

A credit license is required if a company want to operate a scheme with a bike value of over £1000.

As for basic rate tax payers, I agree the way the scheme is run makes it less useful than say getting a bike in a sale (a lot of sale offers are restricted to not include c2w schemes), but there's more to it than. There are two rules that work very well together for people on really low wages.

The first is that as it's a salary sacrifice agreement, you can't sacrifice salary beyond the minimum wage.

The second is that if you offer the scheme to one person in your company you must offer it to all. You can't offer it only to the MD.

These two rules mean that someone on or very close to minimum wage could join the cycle scheme and not pay any monthly repayments.

#IAaBA*

There's definitely a rule saying they can't pass on VAT savings, which would imply they have to recover the full amount.

They would be recovering the full amount by charging 75% of the full amount over the year and then retaining ownership of a bike worth, according to HMRC, £250 after that time. The accountants should be happy with that.

If they then sell you the bike for £250 at the end of the year, they will have loaned out £1,000 and got back £1,000. If they are charging more than £750 over the 12 months, they are making a profit out of you.

: /

As for basic rate tax payers, I agree the way the scheme is run makes it less useful than say getting a bike in a sale (a lot of sale offers are restricted to not include c2w schemes), but there's more to it than. There are two rules that work very well together for people on really low wages.

The first is that as it's a salary sacrifice agreement, you can't sacrifice salary beyond the minimum wage.

The second is that if you offer the scheme to one person in your company you must offer it to all. You can't offer it only to the MD.

These two rules mean that someone on or very close to minimum wage could join the cycle scheme and not pay any monthly repayments.

#IAaBA*

Am I understanding it as if someone is on min wage, they can join the scheme and get a bike for free?

In theory yes (you'd still have to pay any end of scheme cost)

In practice it is a bit harder, most companies will fight tooth and nail to avoid it happening. They will limit the voucher amount available and have the contract over a longer period, so if you leave the individual would be liable for the whole cost (although some of these clauses would be very hard to enforce)...