Cycle Scheme - what am I missing.

[BigBaddad]

Sorry if this has been covered before.

My wife cycles to work every day, her bike is old and crappy so she's been using mine. She tells the other day that she's just had an email at work telling her the her employer had signed up for the governments Cycle Scheme. See here http://www.cyclescheme.co.uk/

To start with it looks pretty good. To simplify things you spend upto £1000 on bikes or certain equipment and you don't pay tax on it and you pay interest free for 12 months before you pay tax and N.I. This saves you about 41% which looks good.

Until you read FAQ's who owns the bike......your employer, so you've just spent a year paying £600 for a bike for your bosses. You can buy it from them at the end of the year at "fair market value" ( But your employer can decide to keep the bike if they wish) So a bike costing £1000 would be worth what £400 after a year? saving you squat. On top of that if you leave your employer with that time you still have to pay but lose the tax advantages. Also you are responsible for maintaining and insuring it.

So what exactly are the benifits of this scheme? Am I missing something. Also read this.

http://www.singletrackworld.com/forum/topic/cycle2work-concerns-over-fair-market-value

[robh539]

I have/ had a bike on this scheme. I spent £600 ish, as included a few bits and bobs. bike was £550. 2009

The benifits are i got a nice bike at a fraction of the price. :)

My company never asked for the FVM or asked for the bike back. What is a company going to do with a second hand bike tbh, let alone 'x' number of them, That was the answer from the Finance director, that then said will lsort when the times comes.

depends on the employeers

speak to lilly and drew as they have not long done this. im sure they have asked these questions

[Viney]

I know a few peeps that have done this and got to the end of the 'hire' period. They paid a nominal fee, one of which was £25 for waht was a grands worth of road bike. So depends on the company really. Some of the compainies dont really understand it all. Xerox however, thought that spending the 40 odd grand they alegedly thought it would cost to set up and maintain, would be better put towards a 100k internal rebrand which in the grand sceme of things means absolutly naff all to out customers!
Great working for these large international companies!!

[cuffy]

I also signed up to this last year.
However, i have just been infomed by our HR dept that the final payment you pay on your bike could be wrong.

Have a looksy here (http://www.bikebiz.com/news/32690/HMRC-spanner-thrown-into-wheel-of-Cycle-to-Work-Scheme)

If the final price doesn't reflect the fair price at the end of the scheme it looks like a lot of companies will have a lot of bikes on their hands going cheap :D

[Viney]

God bless that HMRC. Bunch of muppets!

[cuffy]

Tossers.
I'll just give the bike to my company and go get another :)

[Luckypants]

Cuffy is right (did I really type that?!) I was talking with my brother about this last night, he is an HMRC Inspector and keen cyclist. He told me that the FMV is now considered to be 25% by the Revenue. As this is approximately the saving you make on the purchase price (if you pay basic rate income tax) then you end up paying full whack for the bike overall (out of net income).

An additional cost that is not apparent on the scheme is that you must pay full list price for the bike on the scheme. So if you see a bargain bike, you cannot go for the double whammy of buying it on the scheme and getting a nice bike cheaper. The FMV is also calculated on list price and not purchase price.

I looked into this at the start of the tax year and decided I would be better off saving up the money I would pay on the scheme then go after a discounted bike I wanted and haggle hard for cash. There are a lot of bargain bikes around right now as the manufacturers have introduced their 2011 models, so the 2010 bikes are discounted. There are even a few 2009 models around at really good prices if you look hard enough. I'm looking at bikes now :D

[Jabba]

It is a "salary sacrifice" scheme, i.e. you forego the value of the bike plus other bits and bobs if you buy any from your salary. The payments are taken from your gross salary, so you don't pay income tax or NI insurance.

There are also VAT benefits to employers.

Until very recently, there was no guidance on what constituted FMV and most schemes were based on a 5% end of lease payment (£50 on a £1k bike). However, HMRC has recently published guidance on FMV - see here (http://www.hmrc.gov.uk/manuals/eimanual/eim21667a.htm).

Even with these new FMV considerations, there should still be a saving and the FMV is still a conservative estimate of a bikes resale value at the end of the term. A reasonable estimate is that a bike will be worth 50% of the purchase price after one year and will lose 10% each year thereafter.

It is still a good scheme.

[Edit:
There appears to be no FMV for accessories bought on the scheme. Their value is assumed to be negligible. FMV is on bike only]

[Jabba]

Done an rough calc for my bike for a basic-rate taxpayer (the worst case scenario as higher-rate taxpayers save more) over the 18 months of my agreement:

Full retail price of bike = £1099.
Actual cost with 10% discount = £989.10
Monthly salary sacrifice (gross) = £54.95
Nett payment (less Tax and NI) = £35.17
Equivalent nett cost without FMV = £633.06

Cost of bike nett of VAT = £841.79
FMV (from HMRC table) = £176.78 = £207.71 inc VAT

Total cost of bike (to me) = 633.06 + £207.71 = £840.77

No so good after all. HMRC killed the scheme for basic rate taxpayers?

[arenalife]

I'm just buying one under the scheme, £700 bike which will cost me £360 over 12 months with £30 fee to buy at the end, bargain, am very happy. Got a great quality bike and may even use it for work :)

Your company can't promise to give it to you for tax rules or you wouldn't get the benefit, but they ALL will. Why shouldn't they, you've paid for it, not them.

[SoulKiss]

I'm just buying one under the scheme, £700 bike which will cost me £360 over 12 months with £30 fee to buy at the end, bargain, am very happy. Got a great quality bike and may even use it for work :)

Your company can't promise to give it to you for tax rules or you wouldn't get the benefit, but they ALL will. Why shouldn't they, you've paid for it, not them.

As I read it from above, if your employer doesnt charge you £175 for it at the end, they are committing Tax fraud.

I'd double check that £30...

[metalmonkey]

I have a mtb on the above scheme, it was an a really good deal at the time I did it. I got a great bike and good gear which will last, buying in the sale makes more sense. I took the full £1000 out; When the hire period is over I'll have a better idea of how it all worked out.

I shall be keeping the bike and all the gear, I did ask at the start of the scheme did they want they my sweaty cycling shorts back, I wasn't surpirsed to find out they said no:smt036

I'm probally going to get a road bike, I have found a 2010 bike with a £100 off the list price so thats a great deal. If your going to buy a bike in the sale do it now, becasue they isn't much left I got lucky and found one in my size.

[sasquatch]

The key is "Fair Market Value" - that is, the value of the bike to an average seller at the end of the hire period.

The revenue introduced the 'FMV sliding scale' because companies weren't bothering to check and just charging a minimal fee at the end of the period (my place charges £25) - obviously they realised they were getting the shaft on this one, so introduced their new 'guidelines' so employers don't have to get each and every bike valued. (Actually, the "sliding scale" is still in the favour of you - the bike owner, they underrate the value of the bike by ~10%).

Now, as I see it, if at the end of the period I have a bike with a FMV of a minuscule amount - i.e the bike was nicked, or severely damaged - then your employer (and HMRC) can't ask/expect you to pay that figure - after all, that's not 'fair market value'. Couple this with the fact that all accessories/safety gear/etc. is considered 'scrap' at the end of the period - I'm sure you can all work out the rest.... :)