Fears over Cycle to Work tax changes played down

Agreed, but surely, and I do stand to be corrected, if I have paid £1150 for a bike with a ticket price of £950 then something is very wrong.

I know that the £67 or so pounds a month I have paid out would be worth less after tax but surely the saving you make should be against the value of the product you buy.

The scheme didn't say if you spend £100 we will give you £99 back but take the payment from pre tax and therefore lower your tax burden, or did it?

Don't forget that the payments are made out of gross salary - so you dont pay tax on the payments before you make them. For a £100 per month payment on the scheme, you'd only have received £60 for a higher rate tax payer, or £80 for a standard rate tax payer.

The changes definitely make the scheme less cost effective, but it still saves money for a lot of people if they are higher rate taxpayers or if their company gives them the VAT saving.

Having just had the pleasure of our HR dept trying to explain it to me...

They claim to have saved us money by claimin the vat back, plus the saving through salary sacrifice and yet I have still paid out more than the bike cost.

They don't want to go down the Benefit in Kind route as "it may mess up your tax code"

Seriously WTF is going on??

Needless to say a trip to accounts is next on the adgenda to try and get some answers.

HR said "well we calculate you should just about break even or pay slightly more.."

Not Happy!

It's Evans' scheme through work.

who's running your scheme?

Sorry to dredge this up again but we've just had our letters requesting final payment.

My bike appears to be going to cost me motre thanthe ticket price in the shop.

12 x £67.38 = £808.56
+ our final payment demand of £285 is a total of £1093.56

Given that my bike was only £950 (I may have had a voucher for the full £1000 I can't recall) there is a difference of at least £93.56 and at worst £143.56

According to the Evans Ride to Work website the company can transfer ownership to me, at which point I become liable for the tax on the amount shown in the transfer of
ownership table. That figure could be as low as £69.70 if I delay the transfer for another year.

Anyone have a clue where I stand, before I go off on a rant to our franky hopeless HR dept.

depends on who's running the scheme and how it's financed, but i'd expect better savings than that in the salary sacrifice bit of the scheme. anything from 25% to 50% is more normal. That being said, if the circumstances are against you – for example, your council is opted out of SERPS, not passing on VAT savings and using finance to run the scheme – it's not impossible for the saving to be that low. in those circumstances you're better off just getting a bike on 0% finance from your local shop. Once the scheme is over you'll have to pay at least another £70 to make the bike yours based on current HMRC advice.

Hello from a newish lurker…

I was (am?) going to buy a Cannondale CAADX5 105 for £999 under the cycle-to-work scheme. I work part time for the council and have just gone through the steps to get my voucher, but stopped (paused?) when I saw what the payments were.

Does this sound right to you old hands?

12 monthly deductions of £70.85 i.e. £850.20, then presumably I'd have to pay something at the end of a year to own the bike outright.

Now I'm not saying a £150 saving is loose change, but I've got enough money to buy the bike for cash and lots of shops do interest free credit, and 20% off sales aren't unknown (OK it's a new model, so might stay at full price for a while) and I'm sure if you went in with used bank notes, a lot of shops would give you some accessories.

So am I missing something? Advice, comments or brickbats all welcome.

The one bright light from working for a living is being extinguished. :''(.

Anyway running an expensive bike has been significantly cheaper than my £200 bike.

Also I can throw myself off the nearest steep hill and not hurt myself. Satisfying on the way home.

Might renegotiate my payments though, at the moment I will have paid for the bike in full and then have to pay £250.

jonp - no, running cost are covered by you in the lease agreement

badbunny - yes it applies to you, how much difference it make depends on your employer, tho its only bike cost that applies i think, so 25% of £700 instead of whatever your employer told you it might be.

Cycle to work is dead.
There is only a small number of people for whom the scheme makes any sense now. They have to be higher rate tax payers, work for a company who has decided to pass on the VAT saving, and who administers the scheme themselves.
For pretty much anyone else it becomes more expensive to buy a bike through the scheme unless you tie yourself in to a very long hire period.
The most annoying thing is that as far as I can see, this "clarification" will apply to all current scheme members, who entered into the scheme thinking that the charge at the end of the year to take ownership would be of the order of 5%. We have several people at work who redeemed their bike vouchers only last week!

I bought my bike last year and therefore am not due for the balloon payment until later this year. Will the changes in the tax apply to an agreement already underway? and on a £700 loan (bike plus gear) will it really make that much difference which tax rule it comes under?

Can you claim back the running costs as part of the lease agreement?

I rode my Rockhopper cross country to work every day rain, shine and snow. It a great bike but by the time you have got through tyres, tubes, sprockets, chains, spokes, and servicing it soon adds up.

I lease mine for 18 months what is the residual value then?

I suspect I'm missing something here. But surely the company does not have to have the value of the hire contract to be the value of the bike. It could be enough to cover the loss in value of the bike over the hire period. I.e. company buys a bike expecting it to lose 75% of its value over a year. Hires it to an employee via salary sacrifice then may offer it for sale or possibly further hire.

1000 pound bike. (851 ex VAT)
expected loss in value = 75% of 851 = 638
Hire agreement over 12 months = 638/12 = 53 Gross
Remove 25% NI & Tax ~ £40 per month

Cost to employee 40*12 + residual value 213 = 693
Saving of 31% or thereabouts.

Tax man happy, employee happy.

Write in a clause about employee pays extra if bike fails to be sold for expected value (which also covers stolen/broken bikes) and company accountant is happy.

i suspect my employer will just charge the 25% to save the hassle of the extra calculations.

according to my payslip i have 25% tax + NI deductions so a 1000 bike will end up costing 883 pounds.

1000 pound bike - 17.5% vat = 851
851 - 25% NI & income tax = 633
663 + 250 = 883.

so i save 11%.

To me its no longer worth it given the restrictions i had in purchasing and the length of time it took to get the bike. I could get a bigger discount in a sale, or 10% simply using the LCC/CTC memebership.

When I bought my bike through the scheme I was only able to get £900 for the £1000 voucher, as the operator of the scheme only gave the bike shop that value when they presented the voucher (90% of the voucher value). I was fine with that, and it does explain why profits are good at the cyclescheme companies! Also explains why bikes you'd expect to be listed as c£900 are actually on retail for £1000.

Note that I was happy with the 'deduction', as I reckoned I was still doing okay; given the overall financing of the bike (low residual value from employer (5%+VAT), etc.) and the price of the bike being very competitive (got a nice wheel upgrade for free.)

Anyone joining my employers scheme now get a more complex residual value calculator based on whether it's been used offroad, etc. Conditions are classified A (pristine) - D (knackered). Rules are still being determined.....

As I joined before the rule change, I'm okay - however as I clean my road bike after almost every ride, it's in great nick; and therefore I might not do the scheme again given the higher residual value placed my bikes.

I recently considered buying a new bike via Cyclescheme. When everything was taken into account (including the 11% admin fee that Cyclescheme were intent on adding, the charge they were going to make to the retailer, and the limited tax benefits I could achieve as an NHS employee), I found that I could negotiate as good a deal direct with my local bike shop, with a few goodies thrown in. This also eliminated any concerns about my employer deciding the "will-they-won't-they" final purchase price, which is completely unknown at the time that you enter the scheme.

mad_scott, i think youve misread the final term deffenition. You pay 12 not 11 monthly installments to cover the loan of the bike, once this is complete you have the option to give the bike back, arrange with the company to continue the loan (at no cost) or purchase the bike, and the final 25% purchase payment is EXTRA not a replacement for the 12th payment.

So using your figures youd only be saving 15%

Hmmmm! I got a bike - a Specialized Rockhopper Expert, on the scheme through work (I work in the public sector). The scheme is administered for us by Cyclescheme, and I have had the 'final offer' to buy the bike sent through by e-mail. My bike costs £850, and initially I was told that it would be 'fair market value' - which would be about 5%.
The settlement fee is £54. I don't think that is 5% or anywhere near. It does, however, make me wonder if there is money being made by somebody somewhere! Interestingly, Cyclescheme last financial year had seen its 'profits' rise to £4 million, taking it into the Times list as one of the fastest growing companies that year?

Actually, the scheme guidance notes from the HMRC state that the employer may choose to give the employee the option to purchase the equipment after the loan period is over,and "typically this would be offered at substantially less than the original value of the equipment, but to prevent a taxable benefit in kind arising as a result of the transfer of ownership the employee must pay the employer the full market value of the equipment." There are also other issues regarding the charging of VAT on the sale to the employee, and capital allowances for the employer. My point is that £250 for a one year old £1000 bike is at the low end of market value for most bikes, and still makes the scheme of little value. Along with other issues, it is clear that the scheme was very badly drafted in the first place.

Sorry Geoffroid but your assessment of "there are very few one year old £1000 bikes that I wouldn't give £250 for and consider myself in receipt of a bargain" shows you didn't understand the scheme completely

The employee does not receive the bike for that sum - the case is that he/she makes 11 monthly payments of 1/12 th of original purchase price, tax free, during the course of the year (in a 12 month hire example) and then is required to pay a residual of £250 on top of that.

For a £1000 bike my very poor maths makes that

Monthly Payment = £83.33 Gross
Less 40% Tax = £50
Times 11 Months = £550
Plus £250 Residual = £800

Still saving £200 on list price - but not quite such a bargain now, eh?

And Workhard - to your point, yeah it's a useful loan scheme - but I'd rather they just worked out that total payment upfront and split it evenly over the period - that back-loaded stinger of a payment is gonna hurt!

The scheme has been badly drafted from the outset, and has only been so successful because the rules have been bent by employers implementing it. In particular there can be no agreement at the outset for the employee to buy the bicycle after one year, and this has cleary been generally ignored. Furthermore, if the bike is sold to the employee it should be at market value plus VAT. Even the new guidance of 25% value after one year is pretty low - there are very few one year old £1000 bikes that I wouldn't give £250 for and consider myself in receipt of a bargain. Finally, I am not an accountant, but when we looked at the scheme for our work we decided that it was pointless if you stuck to the rules, and otherwise the company would be committing a tax fraud/dodge. I believe that many of the organisations implementing this scheme, particularly in local and national government, have shown at best a disturbing lack of competence at understanding some basic principles. What confidence does this give me in the rest of their activities, which are often much more complex than this simple scheme?

Whilst I'd rather pay 5% and pay the tax on the difference between that amount and what HMRC say is the residual value I think most employers will just set the transfer fee at £250 for a £1000 bike in order to avoid giving scheme member staff a preferential 'benefit in kind' that they can't give to everyone they employ.

In organisations where staff get no VAT relief it will make the scheme economics marginal as you won't really be making a huge saving on list price of the bike. People may just come to regard it as a useful 0% loan though (I would)