One of my mates just called asking my advice on the cycle to work scheme as he knows I’m into bikes. However I know very little about the scheme.

So, I remember reading an article a year or two ago in the Guardian explaining that due to changes the savings are marginal due to the residual value of the bike at the end of the lease that you have to pay. Is this correct?

I guess my questions are: Is it really worth it? Is there just one scheme or many and are there pros and cons to each?

Thanks

nickewen – Member
the savings are marginal due to the residual value of the bike at the end of the lease that you have to pay.

Basically that – although by keeping a hold of the bike for three years, that down-side can be reduced.

I’d say that the scheme remains attractive for those that do actually want a bike for commuting and that they will keep for 3 years, especially if they are a higher-rate taxpayer.

I looked at the scheme recently and found It to be not as good as It used to be . In my opinion go to somewhere like paulscycles and just pick a 2009 or 2010 model bike on 0% and you will probably get a better deal.

Pretty much what druid said.

Cyclescheme now do a 3 year extended rental where they take the bike back from your employer at the end of year 1 and then rent it back to you (the ownership change from employer to cyclescheme is a paper exercise).

You pay them a refundable rental/deposit that is smaller than the residual value (according to HMRC criteria) in return for a 3 year loan of the bike. When the three years is up I think you can give the bike back and get most or all of the deposit back or keep it and they keep your deposit.

Going down the extended route can be summarised as follows
+ side you pay less for bike in the end
– side you don’t own it until year 4 (at which point it’s probably toast if you ride it day in day out)

The old way where you get taxed on / pay for the residual value is best viewed as credit check free, interest free finance for a bike AND it’s still cheaper overall than buying one yourself (but only marginally). Oh and if the bike’s busted after a year you just give it back and do the scheme again. With the new rules I can see more people doing this myself. Wonder what will happen to all the year old stuff?

EDIT: you really ought to check out the providers’ websites they’ll explain it much better than I have I’m sure.

Is it really worth it? Is there just one scheme or many and are there pros and cons to each?

There are different schemes, but any given in employer will have only one. Whether it’s worth it depends entirely on the details of your employer’s scheme.

Some schemes are operated through commercial middlemen companies, such as Cyclescheme. These may require you to buy from specific retailers, and may charge the retailer a fee, meaning you won’t get the best deals.

Schemes run internally by the company can often offer better savings. Our company scheme offers 35-43% savings, depending on your tax rate, and does not restrict where you can buy from.

Jimbonbrighton to the forum if you please.

Jimbobrighton to the forum if you please.

Thanks for the replies everyone. I guess the answer to the question ‘Is it worth it?’ is it depends… on the scheme being operated and the intentions of the employee as to what sort of bike/riding they want and how long they intend to lease it over.

Cheers

Was it
£1000 bike costs only £560 (due to 40% tax save + NI) and interest free credit.

At the end you pay 7.5% = £75 after 3 years to own bike.

so £1000 bike costs £635, inc 12 months interest free credit.

My understanding of the guidance notes is that the value after three years is 12% on bikes over £1000. Making it £120, but you should only be liable for the tax on that amount ie £48ish, but then what do I know.

Q- is it worth it?
A- depends on the scheme and how long you keep the bike for.

i was on Evans CTW scheme – theres was 5 year rescidual value extension on the lease, so i had the bike for 3 three years, inc the 1st lease year, bought the bike form my company and ended up paying an additional £175. I think i saved £150 on the original sale price so it was worth it for me.

After the Astra Zenica court ruling last year and since the 1st January this year, the cycle to work schemes are no longer as attractive as they used to be. If you are a standard rate tax payer and are hiring a £1000 bike you will pay the following.

Cost of bike £1000
Gross salary sacrifice over 12 months £83.33 x 12 = £1000
Net salary sacrifice over 12 months £56.67 x 12 = £680 (This is after your tax and NI saving)

You don’t own the bike and you still have to make another decision at this point.

1) I guess most people won’t choose this option but if you decide to buy the bike from your employer at this point you will need to pay the HMRC fair market valuation, which is 25% on bikes over £500. So add the 25% (£250) to your net salary sacrifice payments (£680) and you have paid a total of £930.

2) The other option available at this point is to take up the offer of the extended hire period and pay the future HMRC fair market value to the cycle to work operators.

So working on the basis that most people will will extend the hire period for the maximum period of 3 years, you would then pay the cycle to work operator a deposit based on the the fair market value of 7% (£70). If you add this to your net salary sacrifice (£680), you will have paid a total of £750, which is a 25% saving.

However you won’t have the option to buy the bike outright until the end of the extended rental period. If you decide to buy the bike at this point the cycle to work operator will keep your deposit.

So you will have paid £750 and 4 years later you will finally have legal title to the bike.

Other examples:

If a standard rate tax payer hires a £500 bike and takes up the 3 year extended hire option, they will pay a total of £355 (29% saving). This is broken down as follow
Net salary sacrifice £340 (£28.33 x 12)
Extended hire deposit £15 (3% fair market value)

If a high rate tax payer hires a £1000 bike and takes up the 3 year extended hire option, they will pay a total of £650 (35% saving). This is broken down as follow
Net salary sacrifice £580 (£48.33 x 12)
Extended hire deposit £70 (7% fair market value)

If a high rate tax payer hires a £500 bike and takes up the 3 year extended hire option, they will pay a total of £305 (39% saving). This is broken down as follow
Net salary sacrifice £290 (£24.17 x 12)
Extended hire deposit £15 (3% fair market value)

SHotsaway: you’re clued up! Saving for posterity (however bts seems highly unattractive)

Thanks for the information people. Especially the in depth response from shotsaway – much appreciated.

Cheers.

effectively Astra zeneca ruling = now having to pay VAT. So no where near as attractive as it was esp for basic tax payer. As others have said an old stock model from Pauls Cycles would be better value.