I'm running the Cyclescheme at my work this time round and have been doing all the research prior to it starting in August and I see that in Dec. '09 HMRC reviewed the scheme and advised:

Sale of cycles after end of loan period
The cycles exemption relates solely to cycles that are not sold to the employee. However, an employer or a third party cycle provider may choose to offer the cycle for sale to the employee after the loan has ended. If the employee is able to buy the cycle for less than its market value, the difference will liable to tax and to employer’s Class 1A NIC liability.
There is currently no agreement about any simplified approach to valuing cycles and therefore each cycle that is sold in this way should be valued at the time of sale.

Cyclescheme themselves offer an option whereupon they will take ownership of the bike following the loan period and then sell to the employee stating:

Needless to say, it is not possible to predict the market value of a bike prior to the end of the hire period, but in our experience the bike’s value is typically a fraction of the original retail price due to the frequency of usage encountered when commuting to work throughout the year and any additional leisure usage.

Am I being cynical by thinking that 1/2 could be considered 'a fraction'?

Clearly this is going away from the 'nominal fee' there used to be at the end of the loan period which was usually somewhere in the region of 5-10% however could it not be the case where an employer could set up a valuation scheme at the end of the loan period? This could be based on market value minus parts and labour costs to allow for wear and tear replacements etc. So come the end of the loan period the employee is not paying £300+ (having already paid itro £580 in salary sacrifice) for a £1k bike?

Or am I getting concerned over nothing?

I've contacted our 'Key accounts advisor' to get 'a fraction' quantified.
This could see the number of people taking up the scheme at my work plummet.

It's inevitable that HMRC will view anything it sees as an employment related benefit as taxable. In their eyes, it makes sense that if, at the end of the scheme, the residual value of the bike is, say £250 and you only pay £150 for it, then you should pay income tax and NICs (employer and employee) on the £100 difference.

I am inclined to agree.

But I also agree that the costs one has incurred in running the bike should be deducted from the market value of the bike. Whether HMRC agrees is up to them.

Oh, and the bit about a fraction. Yes, I agree. If they meant something else, then they should have been more clear in the wording. I wonder why it is left open to interpretation….

I received a reply from Cyclescheme that didn't really clear anything up.
Apparently HMRC are soon to be releasing another update to clarify the 'market value' thing and Cyclescheme are reviewing their processes.

IMO it started out as a good idea, which got taken over by money grubbers. The main beneficiaries now are the companies running it.

When I got mine last year, the 'market value' was set by my company, and it was 5%. No idea what impact the changes would have, but perhaps your company would be able to give you an answer rather than Cyclescheme directly?

The quote above states "an employer … may choose to offer the cycle for sale"

What happens if, at the end of the scheme, the company officially owns the bike but just allows you to ride it for free? Do you have to buy it at the end if you trust your employer?

Cougar – Member
When I got mine last year, the 'market value' was set by my company, and it was 5%. No idea what impact the changes would have, but perhaps your company would be able to give you an answer rather than Cyclescheme directly?

I too have only ever paid the 5%
This was the amount suggested by Cyclescheme prior to Dec '09 however things may be changing???
If the employer does choose to sell the bike then the onus is on them to ensure market value otherwise the difference is taxable. It's unlikely that every employer will be checked but you never know.
There seems to a few grey areas.

I paid £10 at the end to own my bike. Don't tell anyone it was a carrera though 😛

I think 'a fraction' in this context is probably a figure of speech pretty much synonymous with 'a nominal fee'. My understanding was that they can't agree a specific figure with you in advance because then it would be a hire purchase scheme which is something else entirely. I've never heard of enyone on the interweb getting stiffed at the end.