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Cyclescheme now claimed to be "unviable" for retailers following change in threshold

Cycle to Work provider looking at changing commission structure following complaints from bike shops that it is hitting margins on higher-value bikes

Cyclescheme, the UK’s biggest provider of bikes under the Cycle to Work initiative, says it is looking at altering its commission structure following complaints by retailers that changes in the price threshold allowing people to obtain more expensive bikes while enjoying tax breaks are making it “unviable” for them.

Last year, the Department for Transport amended its guidance to highlight that any Cycle to Work scheme provider registered with the Financial Conduct Authority (FCA) could provide a bike of any value.

> You will now be able to get bikes worth over £1,000 on the Cycle to Work scheme

Previously, there had been a general ceiling of £1,000 for bikes supplied under the salary sacrifice scheme, although larger employers registered with the FCA were exempt from that.

> How to save money on a bike with the Cycle to Work scheme

According to a report in the Financial Times this weekend, the scrapping of the limit has had a knock-on effect for bike shops participating in the scheme, because while the profit margins for more expensive bikes are lower, the commission rates of the businesses providing access to the scheme remain unaltered, irrespective of the value of the bike.

The newspaper says that Cyclescheme takes 10 per cent commission on the retail value of bikes and 15 per cent on accessories purchased through it, while a similar scheme run by Halfords charges independent bike shops 15 per cent of the value of bicycles procured through it.

It cited the case of London-based Pearson Performance, with owner Will Pearson saying that one recent transaction conducted through Cyclescheme for a customer taking delivery of a £2,200 bike and accessories worth £300 saw the Cycle to Work scheme provider take £265 in commission.

Describing his company’s return on that sale only as “acceptable,” Pearson went on to say: “If somebody comes along and buys a £7,000 bike and then produces a cycle scheme voucher, it’s great for the customer, it’s great for the cycle scheme provider, but it’s not so great for us.

“Typically, as prices go up, the margins come down.”

As a result, he and other bike dealers – including London-based Velorution and Cotswold Cycles in Moreton-in-Marsh, Gloucestershire –  have been lobbying Cyclescheme to revise its commission structure.

“If we are having to give up to 15 per cent of that £7,000 away, it doesn’t make it a legitimate proposition for us,” he explained.

Adrian Warren, senior product director at Cyclescheme, confirmed to the Financial Times that the company was rethinking its commission scheme, acknowledging that the current flat rate may not be “the best way forward.”

He said: “The last thing we want to do is treat bike shops unfairly. Talks are ongoing but we are confident we will have a new commission structure in place in the coming weeks that benefits everyone.”

Cyclescheme was founded in Bath in 2005 and in 2009 was named the UK’s fastest growing private company by turnover by The Sunday Times. It was sold in 2010 to the Grass Roots Group, which was itself acquired by US-based Blackhawk Network in 2016.

In June, it said that in the three months since 31 March, employer registrations had risen by “a staggering” 310 per cent due to employers “heavily investing in cycling as a benefit for their workforce” during lockdown.

It added that in June alone, sales of bikes using its certificates had risen by 59.7 per cent.

> Employers rush to sign up with Cyclescheme and give commuting workers access to bikes at a discount

Simon joined road.cc as news editor in 2009 and is now the site’s community editor, acting as a link between the team producing the content and our readers. A law and languages graduate, published translator and former retail analyst, he has reported on issues as diverse as cycling-related court cases, anti-doping investigations, the latest developments in the bike industry and the sport’s biggest races. Now back in London full-time after 15 years living in Oxford and Cambridge, he loves cycling along the Thames but misses having his former riding buddy, Elodie the miniature schnauzer, in the basket in front of him.

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51 comments

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Nick T | 3 years ago
1 like

Why does anyone need to use these parasites such as Cyclescheme? They're no different to those PPI claims companies who just fill the forms out for you, any employers' accountant can organise the tax break in their sleep

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wycombewheeler | 3 years ago
0 likes

cycle scheme = tax avoidance. Legal reduction of tax liability. Anyone moaning about companies restructuring their finance to reduce tax liability legally should not be hypocritical and grab this benefit.

Cycle scheme rules state (or did) that the majority of cycling should be for commuting. I took this to be the majority of trips, not majority of miles, as my commute was relatively short (I could commute 5 days a week, and still one club run at the weekend would be more miles), but I'm sure there are many bikes that rarely or never see the office.

Intention behind the scheme is not to improve health, but to reduce congestion and pollution so it does make a substantial difference whether people do actually commute or use their bike at other times.

Principal beneficiairies of the scheme are cycle scheme operators -> Employers - >Cycle purchasers  in that order. I believe there is significant mis-selling of the schemes where the savings quoted omit the final payment. Maybe this has been improved since I last looked? Not so much "This means that most scheme participants save between 32-42% on the cost of their bike and/or accessories during their initial hire period. " no mention of additional payments after the inital period eating into that saving. And of course retailers paying large commissions may demand list price not sale price, further reducing savings.

I fail to see why after the entire cost price of the bike has been deducted from my (gross) salary ownership of the bike remains with the company, I have paid for the asset, but they own it, and they don't really want it, yet the rules say they must charge for it, or else tax it as a benefit in kind.

Ironically I have done for more commuting on bikes not bought through the scheme (too expensive) than on my first bike bought through the scheme.

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Simon E replied to wycombewheeler | 3 years ago
2 likes
wycombewheeler wrote:

cycle scheme = tax avoidance. Legal reduction of tax liability. Anyone moaning about companies restructuring their finance to reduce tax liability legally should not be hypocritical and grab this benefit.

Whether it's legal is not the same as whether it's moral.

If I pay a few quid less tax and get £250 off a new bike that I use for commuting and I'm in the same class as Amazon, Google, Costa and Apple? Or the big money-launderers and banks?

Am I also a 'white collar criminal' because I added gift aid to the £20 donation I made the other day? The £5 that is added to my donation was set up by the UK government so surely they are OK with me doing that.

15% is taken out of my gross pay for income tax & NI. After that I pay VAT on almost everything I buy, including many food items and takeaways/eating out, insurance tax, car tax, fuel duty, BBC tax (though that may stop soon), even 5% VAT on keeping my house warm and more. My employer also has to pay tax & NI for having me on the payroll.

If the scheme's intended purpose is to encourage commuting by bike then it should only be available to people who use it for commuting by bike. Perhaps the transaction should be between the government and the individual. I pay for a number of things through direct debit or standing order, why can't this be the same?

If a company decides to buy bikes for people to use to get to their place of work or enable them to do their job then it is company property and treated like a laptop, tools or workwear. It's up to the company and employee to negotiate whether the bike can be used for leisure purposes as well and what implications that might have.

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wycombewheeler replied to Simon E | 3 years ago
2 likes
Simon E wrote:

Whether it's legal is not the same as whether it's moral.

Am I also a 'white collar criminal' because I added gift aid to the £20 donation I made the other day? The £5 that is added to my donation was set up by the UK government so surely they are OK with me doing that.

...If the scheme's intended purpose is to encourage commuting by bike then it should only be available to people who use it for commuting by bike. 

Clearly this is all legal, and therefore no implication of being a white collar criminal. Which would be the committing of acts of fraud which are illegal, and not minimising tax obligations in a legal manner.

The issues with the cycle scheme have been set out.

1) it is largely used by people of above average income buying n+1 bikes. Bikes which they would have bought anyway, so people are generally not being nudged in the behaviour they are doing what they would have done anyway and looking to reduce their tax bill. Nothing illegal here, but anyone comfortable with the idea of minimising tax should be consistent with that view and not demonise corporations for doing the same.

2) the bikes are often not used for commuting which is the intent of the scheme. All the scheme providers make statements along the following lines "Currently, HMRC don’t require mileage records or any logs.  However, please ensure the majority of use is for commuting" (Green Commute Initiative). There is no question that this is the schemes purpose, monitoring of use of bikes would add more cost than it would ever save, so it is done on trust. Although this may potentially change if people are buying bikes over £5,000 which the HMRC may suspect are not being used for commuting and the loss of revenue becomes more significant. Anyone getting a bike on cycle to work and not cycle commuting is in a legal grey area. No action has been taken and i doubt any will, but claiming tax relief under the scheme on a bike which is never intended to be used for commuting can't be defended.

3) the savings to the user are a small percentage of the cost to the government. I think it is a very inefficient scheme at delivering it's objectives. Removing VAT on all bikes under a price threshold would save cyclists as much, while costing the government less. AND the savings would not be denied to those on minimum wage or those earning below the tax free allowance.

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Jetmans Dad replied to wycombewheeler | 3 years ago
3 likes
wycombewheeler wrote:

Removing VAT on all bikes under a price threshold would save cyclists as much, while costing the government less. AND the savings would not be denied to those on minimum wage or those earling below the tax free allowance.

Having said everything I said on tax breaks above ... I wholeheartedly agree that this would be worthwhile for both government and bike buyers in all income brackets. 

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mdavidford replied to Simon E | 3 years ago
3 likes
Simon E wrote:

Perhaps the transaction should be between the government and the individual. I pay for a number of things through direct debit or standing order, why can't this be the same?

Because the government doesn't want the burden of administering it - they'd much rather palm that off onto employers and private enterprise.

If they did run it directly, it would enable extending the scheme to the unemployed / self-employed / casually employed, where it would probably have a proportionately greater impact, but unfortunately that seems unlikely to happen.

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Jetmans Dad replied to wycombewheeler | 3 years ago
1 like
wycombewheeler wrote:

cycle scheme = tax avoidance. Legal reduction of tax liability. Anyone moaning about companies restructuring their finance to reduce tax liability legally should not be hypocritical and grab this benefit.

That is patently nonsense. There is a huge difference between taking advantage of poor or inadequate legislation, unintentional loopholes and inconsistencies to minimise your tax liabilities (either as an individual or company), and taking advantage of tax breaks deliberately introduced by government to encourage specific behaviours.

Is saving your money in an ISA equally immoral? Or paying into a pension arrangement? Both offer potentially significant tax savings, and were introduced by governments who wanted to encourage people to save their money rather than spend it all. 

Likewise the Bike To Work Scheme was introduced to encourage people to choose to cycle rather than drive their commute by offering a tax break (although personally, the ability to spread the cost of the bike interest free is of greater value than the tax saving would be). 

All deliberate, all promoted by government and all disproportionately benefitting the more well off because (a) they have money to save or spend, and (b) they pay more tax and can get greater benefit from taking part.

But then, I also don't moan about companies either ... PLCs are under a legal obligation to their shareholders to minimise tax liabilities, and stopping them from doing so in the ways you describe is in the hands of governments around the world who are incapable, or unwilling, to put their heads together and find a consistent mechanism to make a difference. That is where you should be aiming your protests, not at people taking up the government's offer of saving a small amount to tax to buy a bicycle. 

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wycombewheeler replied to Jetmans Dad | 3 years ago
0 likes
Jetmans Dad wrote:

That is patently nonsense. There is a huge difference between taking advantage of poor or inadequate legislation, unintentional loopholes and inconsistencies to minimise your tax liabilities (either as an individual or company), and taking advantage of tax breaks deliberately introduced by government to encourage specific behaviours.

Even if it does not alter ones behaviour?

case 1 person who previously used a car, uses cycle scheme now cycles - exactly what the scheme intends, crack on

case 2 person already has a bike and cycles to work, uses the scheme to save money on a second bike. Continues to commute by bike, but probably more often on the older less valuable bike - legal, but I'd question whether this is what the scheme intends or expolitation of a loophole. The ability to get a new bike on the scheme every year suggests this is acceptable, but the country sees no additional benefit for the second spend, even though it is allowed under the rules. I put this into legal tax minimisation

case 3 person has a bike, makes saving on a new bike. very rarely/never cycles to work

The question is what proportion of scheme participants fall into the three categories. I suspect case 1 is the smallest group. I would hope case 2 is larger than case 3 but i am not so sure.

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jollygoodvelo | 3 years ago
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I find it fascinating that after over 20 years of this scheme, people still have trouble understanding how it works.  As someone said above, "Cyclescheme" is just one provider among many, and yes they charge an end-of-term fee even when the bike's value is assumed to depreciate to zero.  Other schemes do not charge that fee, although are limited in other ways.

Yes, it's a tax dodge pure and simple.  People who take advantage of it are depriving the NHS of funding, reducing the funds available to fix potholes, stealing the primary school reading book from little Jimmy's hands, all that, and the more you earn the greater the saving, which seems a little unfair but it's hardly the only regressive taxation in this country. 

However, it encourages people to buy bikes - and the naming and terms of the scheme are an early example of the government using what's now called 'nudge' behaviour: the power of suggestion to get (a greater proportion of) people to do things that they might otherwise not do.  Obviously no-one is ever going to audit whether your bike has actually been used to ride to work on - how would that ever be enforceable?

Having said all that, personally I'd scrap it, and replace it with a reduced VAT rate, say 5% for all sporting equipment, gym memberships, etc.  You'd need to be quite careful about what is included and not - you could argue a cycling jersey is sport-specific, but how many pockets and what sort of fabric turns a t-shirt into a jersey?  What about a Garmin GPS watch, or an Apple watch?  But you could easily start with bikes, golf clubs, swimming goggles, footballs, etc.

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Awavey replied to jollygoodvelo | 3 years ago
2 likes

as you say as the scheme has been around for a long time and there are multiple providers, there have been changes to the way its implemented which muddy the waters of how it works, the final payment thing I actually thought was an HMRC requirement to offset the value of the bike vs the tax benefit. But maybe other providers hide the cost of it better, lets face it most people who sign up to these things never bother to read the small print so perhaps its a moot point how its done.

Certainly when I used it, it was crystal clear I would pay an amount out of my salary for 12months, and in the 13th month Id pay a final one off payment based on the taxable value of the bike after another 4 years, YMMV if your scheme was different.

But FWIW its not a tax dodge,you arent stealing money away from primary schools to buy a flash new bike, the scheme was introduced to promote healthier living, as all physical activities that the government funds & promotes recognises that £1 spent on this saves at least double the amount in the NHS to treat the consequences of unhealthy living later on. hence it costs the government roughly 34million a year on the cycle to work scheme, whilst it estimates it has a 6.4billion annual cost in the NHS to treat obesity.

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jollygoodvelo replied to Awavey | 3 years ago
0 likes
Awavey wrote:

YMMV if your scheme was different.

On the one occasion I've used a CTW scheme it was Evans: no 13th month, no final payment after 6 years, nothing except the 12 instalments.  Whether their fee to my employer included a consideration for admin, I don't know.

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TriTaxMan | 3 years ago
4 likes

The long and short of it is, I am a fan of the cycle to work scheme in principle, however, like any scheme people will start to take advantage of it.  15% commission is a complete rip off.  How about commission capped at the £1000 RRP?  Because the long and short of it is, it doesn't cost cycle scheme any more to organise a £7,000 bike or a £1,000 bike so why should their margins be increased so much?

Just look at all of the "Green Deal" scheme contractors.  There was a mountain of funding for people to get government funding to make their homes environmentally friendly.  Then the government put in the condition that you could only use an "Approved Green Deal Installer" to carry out the work.  And guess what, those approved installers massively inflated their prices to mean that in general the customer was worse off if they fell for the scam.

I was doing work on my house to add external wall insulation.  A reputable local contractor charged a sum, lets call it £X, all of the Green Deal installers quoted a figure which was essentially £3X, but I could get an interest free loan to pay for the improvements over 3 years.  So essentially these Green Deal installers tripled their quotes because people thought they were getting a good deal by getting this funding, whereas I could have taken a commercial loan against the price of the local contractor, paid 50% APR, and would still have been better off than taking the Green Deal Funding

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jh2727 | 3 years ago
2 likes

I saw the original FT article at the weekend - because it was in my Google News feed, which they allow to circumvent their paywall.

The article was pretty poorly researched - they represented CycleScheme as 'the' state scheme.   CycleScheme is a private company setup to make the company as much money out of the goverment tax incentive as they can - they'll also make some money for employers (otherwise employers wouldn't give them business), but the savings for cyclists are about as minimal as they could possibly get away with.

I wouldn't ever use CycleScheme.  IIRC the savings for the employer actually outweigh the savings for the employee, unless perhaps you are on the top rate of income tax.  That is before you add on any extra amount that the retail needs to cover the commission.  Green Commute Initiative is a vastly superior scheme - unfortunately I couldn't convince my employer, so I bought my current bike outright. By the time I had paid the interest on their loan and the final payment, they savings would have been pretty small (certainly a lot less than GCI). 

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jh2727 replied to jh2727 | 3 years ago
3 likes

BTW, don't forget the whole cycle to work scheme - being a salary sacrifice scheme will save higher rate tax payers a lot more than it will lower rate tax payers and because of minimum wage law, you can only sacrifice any salary that is in excess of minimum wage.

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VeNT | 3 years ago
0 likes

This is why planet X have stopped using cycle scheme.
That can be the whole margin on a bike for many shops

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dassie | 3 years ago
0 likes

Anyway who needs a +£1000 bike to cycle to work on?

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hawkinspeter replied to dassie | 3 years ago
5 likes
dassie wrote:

Anyway who needs a +£1000 bike to cycle to work on?

Me - though my work doesn't do the cycle-to-work scheme.

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Simon E replied to hawkinspeter | 3 years ago
2 likes

My little company (<20 employees) has apparently signed up to Cyclescheme, even though no-one else is going to ride a bike to the office. It is situated beside a fast arterial A-road in rural Shropshire that everyone says is too busy - even I try to use the back lanes if I can as close passes are all too common.

With CS I get to save £70 on a £1,000 bike over 1 year. My LBS will give me 10% discount anyway, which is more than I'd save using the scheme. The only benefit is that the payments are monthly, not a lump sum. To get a £250 saving I have to commit to buying it over a 4 year period, which is ridiculous.

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Zigster replied to Simon E | 3 years ago
3 likes

One of my nephews used CycleScheme.  He got a nasty surprise when they wanted an extra £70 at the end of the year.

I know he should have read the small print but I wasn't aware that any cycle to work providers charged such a high fee which took out quite a large chunk of his tax saving. Based on that alone, I wouldn't recommend CycleScheme.

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Tom_77 replied to Zigster | 3 years ago
0 likes
Zigster wrote:

One of my nephews used CycleScheme.  He got a nasty surprise when they wanted an extra £70 at the end of the year.

I know he should have read the small print but I wasn't aware that any cycle to work providers charged such a high fee which took out quite a large chunk of his tax saving. Based on that alone, I wouldn't recommend CycleScheme.

Think that's standard and it's HMRC rules. You've hired the bike for a year. At the end of the year you can hire it for another 3 years for 7% of the original price, or you can buy it for 25% of the original price. Or you can give it back.

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Sniffer replied to Tom_77 | 3 years ago
0 likes

Not quite.  You buy it for 25% of its original value after 1 year or 7% of its orignal value after 4 years.

It is the standard HMRC rule though.

Not aware that there is a handback option.

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Awavey replied to Sniffer | 3 years ago
2 likes

there is, you can always return the bike after the first year without paying the final payment, they cant force you to buy the bike,but IME its never like they say at any point oh would you like to return the bike or pay the final payment, they just take the final payment

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Sniffer replied to Awavey | 3 years ago
0 likes

Just did a quick check, you are correct.

I suppose it has just been a bit of a no-brainer for me paying the final payment. You get a four year old £1000 bike for £70.

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Simon E replied to Sniffer | 3 years ago
1 like
Sniffer wrote:

You get a four year old £1000 bike for £70.

But that's after paying £750 to borrow it off the company. Total cost = £820. Not a bargain for a 4 year old bike.

And this is all presuming you are still employed by the same company at the end of the hire period.

Which leads me to wonder... if an employee obtained a bike on the CS scheme but then moved away or was made redundant and left the company before the term was up, how much effort would they put into recovering the bike from them? Particularly if the employee moved away with no forwarding address.

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OnYerBike replied to Simon E | 3 years ago
0 likes
Simon E wrote:
Sniffer wrote:

You get a four year old £1000 bike for £70.

But that's after paying £750 to borrow it off the company. Total cost = £820. Not a bargain for a 4 year old bike.

But surely the alternative is spend £1,000 to buy the bike outright at the start, then after four years you would be in the exact same position (i.e. own a four year old bike) but you would have paid £1,000 instead of £820. Yes this is all eating into the savings, but £820 is still less than £1,000.

Simon E wrote:

Which leads me to wonder... if an employee obtained a bike on the CS scheme but then moved away or was made redundant and left the company before the term was up, how much effort would they put into recovering the bike from them? Particularly if the employee moved away with no forwarding address.

As far as I can tell, after the 12 months is up, the answer is zero. You even give them the £70 as a "deposit", then three years later they simply use the deposit to cover the purchase cost with no further paperwork required.

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Simon E replied to OnYerBike | 3 years ago
1 like
OnYerBike wrote:

But surely the alternative is spend £1,000 to buy the bike outright at the start, then after four years you would be in the exact same position (i.e. own a four year old bike) but you would have paid £1,000 instead of £820. Yes this is all eating into the savings, but £820 is still less than £1,000.

Yes I did realise that. I was simply suggesting that it's not exactly the deal of the century, particularly as if you're like me you can get 10% off anyway.

The alternative is committing to a 4 year loan term. However, the scheme is a good incentive for someone who can't afford / justify spending £x on a new bike and kit to go with it in one lump sum. After all, not everyone thinks £1,000 is a modest and affordable amount to spend on a bicycle.

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jh2727 replied to Simon E | 3 years ago
2 likes

If you are signed up to a salary sacrifice scheme and you leave before the end of it, then that is money you still owe your employer and they would probably take out of your final pay cheque... or as much as you can do so without dropping below minimum wage.  The rest would need to be paid back to your employer, mostly likely using money that you had earnt and paid tax on (i.e. negating any possible saving).

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Sniffer replied to Simon E | 3 years ago
0 likes

You have counted the final payment twice.  It is £680 (12*£56.67) + £70 making £750.

Moving employer during the scheme can be an issue.

As you have had use of the bike from new until you have paid £750, it isn't really a four year old bike you have paid £750 for.

It might not work for you and I am not really trying to convince you to do it.  Just pointing out how you can make it work for you.  12 months doesn't really work, you need the four year option to make significant savings.

 

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Simon E replied to Sniffer | 3 years ago
0 likes
Sniffer wrote:

You have counted the final payment twice.  It is £680 (12*£56.67) + £70 making £750.

Yes, I forgot that the calculator had included that in the total.

However, the ownership fee at the end of 12 month option is £250, not £70 as you've stated. As I said before, the £1,000 bike would still cost me £930.

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Sniffer replied to Simon E | 3 years ago
0 likes

I did point out the 7% was for for 4 years and 25% for 1 year in an earlier post.

So we are in agreement. The 12 month option does not really work.

For some, but not all, the 4 year option can work, delivering more significant savings even for basic rate tax payers.

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