Cycle to work scheme provider claims it was 'dropped' by Canyon and blasts new Cyclescheme partnership

Cyclescheme would have asked for exclusivity, in the hope employers choose them ahead of others.

I don't know how other companies do it, but the 7% deals with a perceived risk that by taking ownership of the bike at 4 years, there is a benefit in kind unless the hirer pays the market rate (HMRC says it's 7% at 4 years for a bike >£500 purchase price).  The employee is a hirer, since that is the principle of the scheme.

With Cyclescheme, the ownership is transferred to Cyclescheme, so whether the employee is hiring it from their employer after the first 12 months may be an issue, but if HMRC determines that he is, that 7% avoids a tax liability on the residual value.

if there really is a benefit in kind issue, it can be resolved be declaring it and then paying tax on the 7% rather than the full 7%. so 1.4% for the basic rate taxpayer, or 3.15% for the higher rate taxpayer

Although I am yet to understand how I can be considered to have recieved a benefit in kind from my employer, when the entire purchase price of the bicycle has been deducted from my salary.

It seems to me that the scheme has been set up to benefit employers (who save on NI contributions and then can sell you the bike you have already paid them in full for) and scheme providers (who take a massive commission from bike shops for very little work), but cyclists not so much, unless they are higher rate taxpayers.

As a basic rate taxpayer, you benefit from paying for the bike from income which has not had 20% income tax or 12% employee NI deducted from it. It's not as sweet a deal as higher-rate taxpayers (40% tax, 2% NI), but it's still pretty good. £2000 of bike only results in your take-home pay going down by £1360, and it's spread over a year. 

I'm pretty sure it goes straight to Cyclescheme. The way the cycle to work schemes are set out, you initially don't own the bike, but merely hire it for a certain period. At the end of the hire period, you can either return the bike to its owner or, as a completely separate transaction to the hiring, you can buy it from the owner (the owner being Cyclescheme or other scheme provider). You are required to buy it at its fair market value at the point of that transaction - if you were given it for free or for less than the market value, then it would be classed as a Benefit in Kind.

HMRC provide guidance on the fair market value, which (on bikes initially costing >£500) is 7% after 4 years or a nominal amount (£1) after 6 years.

The rub is that with Cyclescheme's "Own it later" option, you put down a "deposit" after year 1, and then continue to hire the bike (at no cost) for a further 3 years before the "deposit" is used to buy the bike. However, after you have paid the "deposit" at the end of year 1, you don't have any further contact with Cyclescheme. There is absolutely nothing stopping you selling the bike, changing jobs etc. - in short, you effectively already own the bike. Equally, it would make no practical difference if rather than "own it later" after 4 years, you "owned it later" after six years - except that in the latter scenario you would only have to put down a £1 "deposit" at the end of year 1 to own the bike at the end of year 6. I therefore question whether this arrangement is strictly legal in its current form, and if it is I can see no reason other the profiteering by Cyclescheme why they chose the four year option rather than the six year option.

VAT is 20% whilethose on higher incomes pay tax at 40%, so the savings wobe reduced significaantly for higher earners, whilest making it an op tion for those on low who currently cannot acess the C2W scheme, because the salary sacrifice takes them below the min wage thresehold

muhasib wrote:

Why would exempting cycles from VAT be a better solution for the low paid than C2W? The more expensive bikes would be reduced more in actual amount but still only in the reach of higher income groups so it still appears to benefit them more.

all buyers would get the same percentage reduction.

At present the highly paid will save 40%, while the lower paid may not even save 20% if this would take their pay below minimum wage.

GMBasix wrote:

To that end, remember that the salary sacrifice is not primarily [nudge-nudge, wink-wink*] a way to own a bike, you are hiring it for the hire period. It is not a condition of the hire that you are entitled to keep the bike at the end of the hire.  If it is, it's not technically a cycle to work scheme.

Of course this makes all the claimed "savings" a falicy. Can anyone think of anything else where the rental charge for 12 months is equal equal to the list purchase price of the same item?

So we are being asked to jump through hoops to hire something at an inflated cost, so that we might get the opportunity to buy it at the end.

Don't fall out with your employer in the meantime, they are under no obligation to sell you your bike, although I don't recall any reports of an empoyer retaining ownership of the bike out of spite. 

When I first had a bike under a c2w scheme, at the end I was offered the choice of final payment OR I could pay them to take their bike off my hands. Whose bike is it anyway if I have to pay them to take it away?

Good point GMB about the scheme being accessible to all employees. One of the companies i work for, where I suspect the majority of workers are minimum wage, there's an option of a £125 Halfords mountain bike. For a nominal £10. That will suit certain commuters in certain scenarios.

wycombewheeler wrote:

I'd like to know

1) how much revenue is reduced by the cyckle to woirk schemes

2) how much profit is made by companies running the scheme

3) how much is saved by cycle buyers

4) how much VAT is paid on all new bike purchases.

It seems to me that purchases of new bikes could be much more fairly subsidised by removing or reducing VAT on new bikes, such that the loss to the exchanequer was the same as under the scheme, buyers would benefit more and these scheme administrators would not be making profits.

What are you, some kind of communist? Won't somebody think of the poor venture capitalists?

Probably true (and more true now than it would have been when it was set up, because of the increase in VAT) but what you would lose is the aspect of employers promoting the scheme to their employees and the pschological 'savings' motive. A VAT exemption just means that the price of bikes comes down a bit generally - it doesn't plant the idea of buying one into people's heads, and it doesn't make them think "I'll buy one because I'm getting a bargain discount", even though the actual cost may end up being the same.

mdavidford wrote:

Probably true (and more true now than it would have been when it was set up, because of the increase in VAT) but what you would lose is the aspect of employers promoting the scheme to their employees and the pschological 'savings' motive. A VAT exemption just means that the price of bikes comes down a bit generally - it doesn't plant the idea of buying one into people's heads, and it doesn't make them think "I'll buy one because I'm getting a bargain discount", even though the actual cost may end up being the same.

Interesting, it also doesn't serve as an interest free payment model.

However how many of these people responding to the idea being planted in their head make much use of the bike? No one benefits if employees get cheap bikes which they don't use (other than cycle scheme and the manufacturers selling more bikes)

mdavidford wrote:

Probably true (and more true now than it would have been when it was set up, because of the increase in VAT) but what you would lose is the aspect of employers promoting the scheme to their employees and the pschological 'savings' motive.

On that front, an anecdote.

The CEO of our small company mentioned the scheme in an online meeting last year (most staff are still at home). The people that expressed the most interest in the idea were the ones least likely to ride a bike - and absolutely NEVER on the road to the office. One of them even said she's do it so that her other half (who also never rides a bike) could get one "on the cheap".

As the sole 2-wheel commuter in the organisation I was not impressed.

Cycle commuter for almost 35 years, the various schemes that I have been offered have never provided anything for the way I cycle (utility/commuting abd leisure).  Constant upkeep, small scale purchases from myriad suppliers.  Things die and need to be replaced, no chance to fill out a lot of paperwork and waiting for a long time.

Even building my shockingly expensive Ultimate Commuter, I was on a short term contract, LBS built it, but I sourced a lot of the parts from all over, some from the US.

I did once think of going for it to buy a Cannondale Hooligan, , but the C2W scheme was only open for a very limited time, probably with few numbers being available.

Secret_squirrel wrote:

I don't see why they need these 3rd party firms at all. Tax the cost of the bike at source  is your tax code. Then everyone could get one and moving jobs would be irrelevant. 

They're not necessary if your employer - as mine does - administers the system themselves.
The advantage was that I could buy any bike from any retailer and negotiate a discount. My employer offered to pay the retailer by cheque or credit card. Many retailers won't offer discounts if you're paying using one of the 3rd party cycle to work schemes.

HMRC rules are that a bike that costs more than £500 is worth 25% after 1 year, 7% after 4 years, and nothing after 6 years.

Cycle schemes offer to extend the hire period to reduce how much you pay at the end. GCI extend it to 6 years, all the others that I know of extend it to 4 years.

c2w Support allow you (or did, when I used the scheme - admittedly 10 years ago now*) to extend until the FMV is zero - in fact they pretty much assume that that's the default position.

[*Happy (slightly delayed) 10th birthday, bike.]

Don't forget that workers on or near minimum wage don't qualify either; if the cycle to work wage deduction takes them below the minimum hourly rate.

I was unaware of this.  Thank you.

Most of the benifits of course are to the higher rate taxpayers.

ktache wrote:

Most of the benifits of course are to the higher rate taxpayers.

Unfortunately so.

I too was unaware of the issue of those on/just above minimum wage.

When I last checked the amount saved on a £1,000 bike (a lot more than I've ever paid for one!) over 12 months it was less than the 10% discount I get at my LBS.

If I used a credit card then took advantage 0% on transfers offered by most card providers I could get some interest-free credit and spread the cost. I'd also not have the hassle of the paperwork and the whole 'transfer of ownership' thing at the end of the hire period.