Hello,

my organisation is joining the cycle to work scheme..

the terms are 12 months ‘payback’ towards the cost of the bike..

then an option to give the bike back or extend to another 36months ‘hire period’ for a ‘deposit calculated on the value of your bike’ ( to preserve the tax relief)

my question is, if i have a £ 1000 bike, what will the 36month bit cost me please?

cheers,

cheezeyB.

Depends on which tax bracket you’re in.

You pay direct out of your salary before tax, so if you’re in the 40% bracket you save 40% (400smackers 🙂 )

Not that straight forward though, as it’s your marginal rate of tax, which isn’t 40% regardless of where in the 40% band you sit. There’s also the NI savings.

Check out the Cyclescheme website for a savings calculator.

That said… all that’s only for the first 12 months. Generally it’s very cheap to extend for the 36 months, 5% the cost of the bike or sommat. Cheaper than buying at “fair market value” after a year, which is what my company have chosen to do sadly.

Oh yes, there’s also the small fee at the end of the year to extend into the 36 months free period. It was about £60 for my £900 (rrp) bike.

Pretty sure it’s close to 7% of the value of the bike you pay to extend to the 36 month option. The 7% will be payable at the 12 month point though. Certainly much more attractive than the 17% or 25% value (depends on value of bike) that you will have to pay on the 12 month option. As always check with your employer to see how they are running things.

Yes, I had that discussion. The only thing I’m not sure about is that if you do the extended hire then you still don’t own the bike, so presumably, legally, you can’t sell it or anything. Whilst I’d likely not do that inside of a year there’s a good chance I would within 4 years. Or just break it!

If you go for the 3 year fee does that mean you cannot get another bike for the loan period?

Junkyard, you can get another bike after the initial 12 month period, regardless of which option you choose at that point.

What I don’t really get is why you’d ever want the 25% option… Except for the “not owning” it thing, if that’s the case.

My understanding is the additional 3 year hire is purely to get round HRMC tightening of the rules around the value after 12 months.
As in you don’t have a tax liability as after 4 years the bike has zero value and the scheme operator really doesn’t want the bike either.
I suppose if the tax man ever audited you there would have to be a bike.

My understanding is the additional 3 year hire is purely to get round HRMC tightening of the rules around the value after 12 months.

But you have a choice – our company have opted to charge people 25% and transfer ownership after 1 year. The guy who’s sorted all these was a bit confused by the whole thing, and thought that was the best option for all concerned. I’m not so sure.

Surely Cyclescheme didn’t introduce a loophole to get around a barrier they themselves effectively implemented…?

The cheapest thing* for the employee would, I think, to be given the bike as a benefit in kind and then pay tax on the (estimated) value of it, but it seems to be very rare that companies choose to do that.

*Out of the current options, and I’m sure this is a valid one.

They usually have a calculator you can bash numbers into if you have an employer code. Or just go to cyclescheme or similar if you don’t know who is doing yours yet.

In simple terms for a £1k bike, as a basic rate taxpayer you save 32% initially and then pay 7% extended hire – overall savings are 25%ish.

As a higher rate (40%) taxpayer you save 42% initially and then pay 7% extended hire – overall savings are 35%ish.

My employer chooses to use an external finance company which adds 11% to the costs of buying a bike through the scheme. Barstewards.

The extended hire is 7% for a bike over £500 and 5% for a bike under it. Which just happens to be the figures HMRC accept for the value of a 4 year old bike. This came in because people were taking the mick and claiming that a 1 year old bike had depreciated from £1000 to £1 when the employee bought the bike from the employer. Heaven forbid the government (of any/all colours) could come up with a simple scheme – maybe just tax free bikes and forget all this capital depreciation stuffs.

Then you get to our incredibly complex tax system so savings may differ from those above. Because it is salary sacrifice, if you are in the effective 60% bracket then you save even more. If you are in the bit where child benefit gets taken off, you get some child benefit back. If you receive tax credits, it counts against them so you have an additional 42% saving.

As a higher rate (40%) taxpayer you save 42% initially and then pay 7% extended hire – overall savings are 35%ish.

Again, not that straight forward, my company have just switched to Cyclescheme and according to discussions I’ve had with them we have to pay 25% “fair market value” after a year, but we own the bike.

If you do the 7% 36 month extension you don’t actually own the bike AFAIK, so presumably you can’t legally sell it, and if you leave the company you need to give it back or pay the full retail value of the bike?

However as there are no further payments to be made within this 36 months this may not be the case in it’s entirety.

Here. This implies it’s up to you, our HR guy who’s set it up thought not.

Thanks for the help guys,

so bottom line is then (as a lower rate tax payer)

£1000 bike,
12month pay back ~£82 per month (before tax deducted from earnings)
after 12 months, another 7% payment for the 36month lease ~£70
my company says one bike per 4 years.

presumably the bike is mine after 4 years?

You can get another bike on the scheme after the 12 months is up. After that ownership reverts from your company / employer to Cyclescheme. THey buy it back for a pound. At this point your employer has recovered their outlay to purchase the bike originally. Cyclescheme extend the scheme for another two years for the one off final value payment of 7% of the original purchase price.

presumably the bike is mine after 4 years?

Yes.

and if you leave the company you need to give it back or pay the full retail value of the bike?

Just sorting myself out on CTW at the moment and looked into this.

My bike is purchased over a year (or portion thereof if the scheme is entered part way through the benefits year).

After a year your employer has no further responsibility, you pay the 5 or 7% deposit/fee to hire and your contract is then with Cyclescheme for the remaining 36 months. After 36 months the bike is yours.

If you leave your employer in the first 12 months of ownership you are liable for the full payment of the remainder of the 12 month hire agreement (which will not benefit from the tax break). Cyclesheme can then choose to ‘sell’ the bike to you at its nominated value or start the 36month hire period (as you have now paid up the initial 12 months).

Hope that makes sense.