Quote..............As an example, someone who earns £20,000pa and buys a £700 bike through Evans’ Ride2Work programme with a six-year hire agreement will pay £34.26 a month for the first year. After that there are no more repayments due and, assuming they stick with the scheme for the full 72 months, no ‘disposal value’ fee to pay.

In total, they’ll pay £411.06 for the bike – a 41 percent saving..............

And if you were to take out, say, a one year agreement, then it seems to me that you would pay 12 monthly payments and then a large lump sum, ultimately meaning that you save next to nothing on your bike..............great idea....??

surely, after the year long hire period, the bike is still effectively company property if ownership is not transferred. what is to stop the company selling the bike for whatever it feels it is worth to another person privately? Nothing as far as i can see.

or is that too simplistic?

LoUiS1985

You pay for the bike over 12 months but can opt to extend the hire agreement for up to 7 years. The lump sum payment for the bike therefore reduces each year, down to nothing for 6+ years.

Daver27

Guidelines have been set for the final value of the bike.

Check out the valuation table here : http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm

I appreciate they have set guidelines, but if you don't want to purchase the bike, it then becomes the physical property of the employer, who (i am guessing here) can seel it to whoever they want for however much they want.

i.e i might not want to pay the final transfer of ownership fee, so bike becomes property of employer after hire period (12 months). they can then sell it to another employee for whatever they want as it is their property.

Hi guys,

Its Mark from Evans Cycles, just wanted to clear up a few of the comments.

@LoUiS1985 - How long the agreement runs for is up to the employer. Most recognise that in order to continue to offer benefit they need to extend the hire agreement for a longer term. Most of our clients are doing this and thereby preserving the benefit of the scheme for their employees. If an employer wants to keep the scheme to a one year agreement then there are other options available, and in fact the savings are still pretty healthy (25 - 30%) if a one year agreement and transfer of ownership is in place. With Evans you can buy sale items on the scheme so you get a double saving.

@Daver27 - the decision not to purchase the bike is different to the decision to have a longer hire agreement. No employer is going to break a legal contract to sell a bike you are hiring to someone else. If you the employee refuses the offer to buy the bike at the end of the agreed loan period then the employer may consider selling to someone else.

@SDK2007 - thanks for your help clarifying things. For your info the hire agreement runs for up to 6 years and not 7 years. There is a 12 month salary sacrifice period and then a possible further 5 years of hire.

So if I have a bike for a year and replace the chain twice, chainrings once, upgrade the saddle, pair of new tyres etc etc, and the bike at the end of the year is nearly as good as new, the second hand value will be high. Can my expenditure be offset on the second hand value (would you need to prove what you'd spent) or would it be in my interest not to maintain my bike? It all gets too complicated. Also, the discount you can get on a bike from a shop is usually not available if you pay on the scheme, again limiting the benefits. Many also offer interest free credit these days.

Sale bike - 0% interest loan from LBS = Better deal IMO

and no lengthy tie ins!

A good example of why I don't take tax advice from my friends who own bike shops, and they don't get me to fix their bikes. There is all sorts of wrong in the article and comments.

There are a load of ways to mitigate the apparent extra cost on the "new" second hand value guidance.

The scheme's finished. Who the hell wants to be tied into some ridiculous convoluted agreement for seven years? Less hastle to get a bike in the sale that's yours, when you consider the bike, choice, and retailer restrictions that are experienced with the scheme.

I was under the impression that repair costs will be deductible from the final payment. Within reason of course as you can't claim to have bought a new £400 fork in the 1st year as that would be covered on warranty.

With regards to the final payment - even buying the buy at the end of the 1st year you still save the VAT on the bike which is better than nothing. True you may get a better deal in the sales but you won't get as much choice.

And the issue of the employer selling the bike to someone else - I am pretty sure I read in the old rules that 1st choice must go to the employee if they want the bike or not.

It's not a "saving". It's a subsidy from HMRC, ie the rest of the tax payers. It's more often than not used by people who do not commute by bike but want a part of their cycling cost paid for by other tax payers. Yet another official tax scam that we don't need when the country's finances are in such a dire state.

Andy

The way that the scheme works - as far as I know - is that it is the responsibility of the employee (Not the employer) to service and maintain the bike during the loan period.

The scheme is also inflexible in that the employee **must** repay the full value of the bike to the employer by the end of the hire period - no amount can be offset in any way for any reason because you're not allowed to 'anticipate' being able to purchase the bike at the end of the hire period.

Probably the best solution is the P11D route ie at the end of the (shortish) hire period the employer gives you the bike free of charge and then you pay benefit in kind taxation on the final value (as determined by HMRC unless you can 'prove' the bike is worth less). This works out at comparable saving to the 'original' scheme where most employers adopted a nominal 5% final value.

Many companies would, I think, be wary of extending a loan period for a long time. Apart from the added admin cost, during this period the probability that an employee will leave is not insignificant which adds to the complexity. None of it is insurmountable but the long tie-in period for both employer and employee is not ideal.

my issue of selling to another employee seems to have been taken slightly out of context.

what i meant was this:

I pay the bike off on the scheme over the agreed 12 months, then refuse the offer of buying the bike. the bike essentially becomes a company asset for them to do with as they see fit. they could then sell it to another employee or privately (my girlfriend for example) for whatever they want (as it is no longer in the scheme and is a company asset) who could then sell it to me for the same figure. As far as i can see, this would satisfy all parties.

If you "wait" for 6/7 years before finally "purchasing" the bike from your employer, does this prevent you from taking out another cycle scheme voucher ("hire") during the same 6/7 year period?

Is this is the case, and you wanted to make the most of the potential reduction in value caused by time, then this would mean that you could only purchase using cycle scheme every 6/7 years.

Any thoughts/advice?

A bit of headline sensationalism surely? There is no "loophole", merely the way the scheme is intended to work.

I wouldn’t want a new bike within six years anyway, I prefer to look after a machine, for the little effort that takes, rather than run it in to the ground. It is after all only a ride to work bike not something to shave fractions off your TT time.

I'm half way through a scheme now, having purchased my bike in April 2010.

I am waiting to find out which if any of the options my employer will allow me to do, if I can extend the loan agreement, or if I can take the cost value at £0 and pay using the P11D.

I am just concerned my employer will think both options are too much extra work, and they will just follow the CycleScheme recommendation which will be pay the 25% final value.

6/7 years is a ridiculous length of contract, who realistic can say where they'll be in that length of time. Not forgetting that we're in a time when job certainty is not very high at all, what happens if you're made redundant in the first year, or years following that? presumably on top of the worry of not having a job you've got to stump up cash when you need it most to buy the bike.

At the end of the day if you choose to end the agreement before the end of 6 years, say at 3 years then you only pay something like 8% of the value before VAT and the VAT on that amount. That is not going to be a lot tbh.

If you buy it after 1 year then you still save the cost of VAT on buying the bike in the 1st place and you got to spread payments with a nice 0% loan.

It's better than nothing.

my bike is on the scheme ,it cost 1000.00.my monthly payment is 78.90 which totals 946.80.leaving me just shy of the grand,so if i have to make a 25% last payment surely it makes cost more than 1000.00?where do I go from here?

cheers murf.

I think what is more annoying is not that the scheme has changed, its that it has retrospectively changed, so even though you have signed up for one contract, you are now forced into another and there is not a damned thing you can do.

it is grossly unfair for those already in schemes and should have been rolled out to future users of the scheme.

@murfeey That looks like you are paying too much!

£1000 = £850 before VAT.

over 12 months = £70.92

Then the £70.92 is pre income tax, so in real terms is less again, depending on your tax rate.

I agree with Daver27.

I also thought tax law in the UK couldn't legally be introduced retrospectively so surely this change should only be applied to anyone taking up the scheme after the changes were introduced.

Had I been aware of these changescoming in prior to my uptake of the C2W scheme I would have certainly reconsidered.

There are so many suggestions/queries here that this article doesn't answer. I suggest if you are considering taking up the scheme then you read and understand the guidelines on the official website.

A good start is this site; it will answer most of the queries posted above : http://www.cyclescheme.co.uk/employer,faqs.htm

For me the scheme is simple and the new guidelines clarify the process better for the employer with regard's to the final payment.

@RussellO

Once you have 'paid' for the bike (12 months), you can enter into the scheme again. Even if you have chosen to extend the hire agreement out for another 5 years.

@SDK2007

that link answers absolutely nothing, it also implies the savings are in the 40-50% range, but fails to inform you of the fact you have to wait for 7 years to acheive this.

it appears to be written for the previous rules.

OK, to try and answer a few questions and clear a few things up for people:

The provision of a bike for business use is an exempt benefit for tax purposes, as long as it is used for "business purposes" (in this case this means that when it is used, it is mainly used for commuting).

The salary sacrifice is a commercial decision by your employer to recoup the cost.

You don't own the bike, your employer does. It's theirs. It's yours when you buy it - if this is for less than market value, then a taxable benefit arises. The "new cost" is because HMRC have "clarified" what they consider the market value of a second hand bike is, it's not a change in tax law. You can always argue the value of the bike if you think it's not 25%.

The easiest way to avoid paying too much is for your employer to deduct 75% of the bikes cost over the payback period (a year?) so that if they offer to then sell it to you for 25% of its original cost, you've only paid back 100% (albeit some of this was out of net salary).

This scheme is only a subsidy from HMRC in the same way that, say, ISAs or some training costs are. It's them not taxing something, rather than subsidising something.

Finally, Cyclescheme are no more the official providers than Halfords or Evans. A company can run this scheme internally if they want to.

"You don't own the bike, your employer does. It's theirs. It's yours when you buy it - if this is for less than market value, then a taxable benefit arises."

How does HMRC decide what a market value is?surely if the company owns it it's up to them to decide what the market value is and charge

a) what they think it is worth. and

b) what they believe they would get selling it on theopnne market.

After all I don't believe that HMRC dictate the market value of any items sold second hand (which is what the bike would be) in any second hand or charity shop.

Quote "You don't own the bike, your employer does. It's theirs. It's yours when you buy it - if this is for less than market value, then a taxable benefit arises. The "new cost" is because HMRC have "clarified" what they consider the market value of a second hand bike is, it's not a change in tax law. "

so that basically confirms what i have been saying all along, the company owns it, they can sell it for what they want to anyone but the scheme member after the hire period, thereby avoiding the taxable benefit to yourself.

@Pinkster

Selling goods second hand in a shop is slightly different, as this is an "arms length transaction" between "unconnected parties". It's assumed that the price agreed is MV by virtue of neither party wanting to do the other a favour.

HMRC aren't going to waste their time valuing everything, so they bring out guidance, which is what the depreciated value tables are. The employer can charge whatever they want for the bike, but should be able to justify its commerciality if challenged.

@ Daver

Yeah, the company could sell the bike to anyone (in law) and the tax efficiency falls apart where the hirer has a right to buy the bike at the outset, but realisitically they're not going to piss an employee off like that over £50. Not unless they're happy for them to quit/be de motivated/etc.

I'm not sure the employer does have to give first refusal to the employee who hired. Under the guidance, it specifically state it is ONLY a hire agreement, and no mention of a guarantee of purchase can be given. Purchase must be treated as a totally seperate transaction, so could be sold to anyone, but it must be at full market value.

The reality of cycletowork is it used to work before this "clarification", even though there were gaping holes in the protection to the employee, now it's just crap.