“Would they like the shirt off my back as well?” Bike shop owners fume as Cycle to Work scheme stops retailers charging additional fees

If you have accidentally drifted into following Dan Neidle on Twitter who is well up on his tax things, he shows that removing VAT almost never results in a price reduction to the consumer.

IanMSpencer wrote:

If you have accidentally drifted into following Dan Neidle on Twitter who is well up on his tax things, he shows that removing VAT almost never results in a price reduction to the consumer.

In that case, keep VAT on bikes, but allow consumers to reclaim any VAT spent on bike related purchases.

Nothing, except its a way of shifting stock & creating new repeat customers.

A sale earns them money, even if it the lose some of it on the commission to Cyclescheme. If they don't participate, they lose those sales.
Doesn't take a degree in economics to figure that out.

Exactly.  So if they want those sales, they'll simply have to suck it up and deal with the conditions.  Whining is useless.

Or they walk out, it's a free world.

It never ceases to amaze me how most heralds of free enterprise turn socialist once the system works against them.

GCI is great, definatelty worth asking your employer to add them as an option.

Came here to say - why does everyone act like Cyclescheme are the only provider? 

GCI is far better and there are at least 3-4 others. 

Shops can simply stop offering Cyclescheme. 

The way to go. Encouraging my employer (2000 employees) to switch to this scheme soon when current arrangement ends. Halfords is even worse - charge 15% to their 'partner' shops. 

Isn't the end of hire fee literally the taxable value of the bike so part of HMRC rules about benefits in kind and tax ?

Unfortunately you need a middleman company to make the scheme work because of the financing rules,credit, debt and outcomes that aren't always about keeping the bike.

I don't understand why shops are selling C2W bikes at discount though, I thought they had to charge RRP, as how else do you work out the correct tax position.

It kind of sounds like maybe some had found a loophole that exploited the rules and gave them an extra cut from the sales, which Cyclesheme have closed.

Cyclescheme charges a 7% extended hire fee direct to customer (on top of their immediate 10% cut) to delay ownership of the bike until the HMRC taxable value is nil. Other schemes charge £1 for this extended hire period.

Sure you 'need' a middleman, however with the combination of 10% + 7% Cyclescheme take the biggest cut on the market - over 3x more in total than GCI, for example! Even more than Halfords with their upfront 15% bike shop cut.

Your comment about discount and tax position makes no sense and is based on an obvious misunderstanding of the ride to work tax benefit. VAT is still paid on the bike at point of sale and this is worked out the same way it normally is - a percentage of the selling price. The tax benefit is realised by deducting the employee's scheme repayment from their paycheck before NI and income tax is levied. The only thing that matters here is the voucher value and the employee's salary. Whether the bike was discounted or not makes no dfference. It can't possibly make a difference. The people administering the payroll deduction don't know whether the bike was discounted. They don't even know what was bought - it's completely irrelevant.

Finally, to say this is about shops trying to make an extra cut is disingenuous, this is about shops trying not to make a loss. Take a bike that is being sold on clearance at 35% off, the shop is unlikely to have much more than 5% left on that after trade price and VAT are taken into account (let alone overhead). If the shop are not allowed to add a surcharge to cover the 10% that Cyclescheme then they'll make a loss of 5% (again before operational costs are even accounted for). Cyclescheme will still make 17%. So please, tell me again who is trying to exploit a loophole?

Yes, HMRC rules do require customers to pay for the taxable value of their bike on order to own it.

However, the way Cyclescheme (and other providers) work is normally "Pay now own later" - i.e. at the end of the first year, customers pay a "deposit" and then continue to hire the bike (at no further cost) until n years later, the "deposit" is used to buy the bike and ownership is legally transferred to the customer. In practice, after paying the "deposit", the customer in effect owns the bike - there is no further communication or contact with the scheme provider.

Cyclescheme have decided n to be 3 years (so the bike is 4 years old at the point the customer officially takes ownership) and HMRC rules state the the value of a 4 year old bike is 7% of the new value (if it cost >£500 when new). Other schemes, such as the GCI, allow n to be 5 years, and HMRC rules state that the value of a 6 year old bike to be negligible (a symbolic £1 is sufficient).

There is no practical difference between the Cyclescheme approach and the GCI approach - in both cases, the customer is, in practice, free to do what they want with the bike at any time and no-one cares or checks. The only material difference is the Cyclescheme approach means the customer spends more money and Cyclescheme get more profit.

When I got my C2W bike 7 years ago, i dont remember the scheme provider though I don't think it was cyclescheme, but it operated exactly as you've laid out how cyclescheme work theirs currently.

Even now with a different provider who lets you use Halfords, still works on the 3 year + 1 premise & no one has ever queried the final payment.

And it was definitely RRP cost on my bike, no discounting.

stonojnr wrote:

I don't understand why shops are selling C2W bikes at discount though, I thought they had to charge RRP.

One more thing on this particular point - no-one but the shop itself can demand that a shop only sells product at RRP. If any ride to work provider, or even HMRC themselves, tried to demand that they did, it would be price fixing and highly illegal. It's why RRP has two Rs, the first R is specifically there to indicate that it is not a fixed, concrete, market wide price. 

Something a lot of people don't realise is that price stickers do not legally set the price of an item - they are actually only an 'invitation to treat'. A notice to the consumer that the item is for sale and that is how much the proprietor would like to sell it for. The actual sale price of the item isn't legally set until you have a contract with the seller - ie. you have both agreed on a price and you have paid money towards it. What that price end up being could be anything at all.

Emphasis on the "I thought" part, mainly because when the 1k limit was in place, and some schemes still enforce that limit, no one ever said go find a shop that will discount your >1k rrp bike to under the limit.

Equally manufacturers at the time the scheme started fell over themselves to create a whole raft of bikes for just under 1k, why if a shop can discount it again and it not be a problem ?

stonojnr wrote:

Emphasis on the "I thought" part, mainly because when the 1k limit was in place, and some schemes still enforce that limit, no one ever said go find a shop that will discount your >1k rrp bike to under the limit. Equally manufacturers at the time the scheme started fell over themselves to create a whole raft of bikes for just under 1k, why if a shop can discount it again and it not be a problem ?

I think you've confused yourself here. We're talking about shops selling bikes that are already discounted and not wanting to lose what little margin they have left (or even, not make a greater loss than they've already decided is acceptable).

So, the answer to your question "why didn't shops just discount >£1k bikes to <£1k bikes in the old days if they were allowed to?" is exactly the same as the answer above - they don't want to lose money. Think about it, you're asking why shops didn't suddenly offer ad hoc discounts for people because they were paying by a method that also cost the shop a big chunk of its profit margin? It's not one of life's great mysteries, is it? It's exactly the same answer as why doesn't any shop discount any item to any price on any day. It's exactly the same answer as why can't I walk into Tesco and tell the cashier I'm only going to pay £5 for the £10 pizza I just picked up. The problem is that the shop needs to make a profit selling things or it won't remain a shop for very long.

And how do you know that - has there been some research published on it?

Of course tax payers pay for it. Tax payers pay for everything the government does, it's how government works. And in this instance, it's "paid for" by HMRC collecting slightly less tax from a person for a year.

Presumably a lot of people using C2W are people who wouldn't otherwise have bought a bike at all, and so it creates extra demand and gets potential new repeat customers into bike shops. Plus essentially free advertising via the Cyclescheme website, which (especially when tailored to the employer) adds a bit of authority.

Finders'/introducers' fees are nothing new, and businesses can choose whether or not to pay them. Employers (who are the ones forking out the cash at point of sale) can't be arsed dealing with employees complaining that they were charged £1100 for a bike listed at £1,000, which they do even though they're getting tax savings bringing the cost well below that. 

I get that, but feel sorry for the shops supplying the goods, sometimes at a loss. it isn't right.

Sadly we live in a world where many people don't give a stuff about anyone else, as long as they get a bargain.

I get that, but nobody is forcing the shops to sell at a loss. They set their prices, at rates they feel will be best for their businesses. 

I've said it before, but a lot of bike shops might do better if they stopped selling bikes. Stop trying to compete with internet sellers (unless you've got a niche that means people will pay extra to buy in person), and focus on maintenance/repairs. Less stock, better cashflow, smaller premises. No company has a right to stay in business unless it's selling something people want at a price they'll pay. 

There's very little profit in just workshop repairs, it's a sideline in most bike shops in some cases largely to have someone who can competently build up frames for new bikes.

you do much better selling bikes, or getting people to buy things they don't really need for bikes.