14

There is a cycle to work scheme my work is offering which works roughly like so:

Change some of your pre-tax salary into vouchers to use to buy a bicycle, and bicycle equipment (helmets, lights etc). This is deducted from your monthly pay as the cost of hiring the bike. At the end of the year, you can buy back the bike with a 12.5% discount off the original price if it is less than £500, or with a 25% discount1 off the original price if it's more than £500.

I can't think under what circumstances this scheme would be worthwhile following. Where I work the salary is enough that (with careful budgeting) you could afford a £500 bike in a month or two.

Have I understood the scheme correctly, and is it ever cheaper than buying the bike directly?

1. This is my mistake - please see here for clarification

  • 3
    Why is this so complicated? Is the intention is to get people to bike to work? By whose initiative, and who is funding them? – dotancohen May 22 '15 at 13:09
  • @dotancohen The government? – Pureferret May 22 '15 at 13:41
  • 4
    Then subsidize the bike, or don't tax it. Governments already have financial tools for encouraging certain behaviour and discouraging others, this seems overly complicated. – dotancohen May 22 '15 at 14:04
  • 3
    @dotancohen I'm not the government.... try gov.uk/contact – Pureferret May 22 '15 at 14:07
  • 1
    I know, the message was meant for them but directed at the internet at large. That is usually how complaining to / about government works! – dotancohen May 22 '15 at 15:59
22

I administer the scheme for my workplace so I know quite a bit about this.

Firstly, I think you have slightly misunderstood the scheme - the final cost at the end of the year is 12.5% or 25% of the original cost, rather than a 12.5% or 25% discount off the original cost.

This means that if you are a higher rate tax payer then yes it is worth it - if you buy a bike costing £1000 you effectively save 40% of the cost of the bike initially, then pay 25% of the cost of the bike at the end of the scheme, so you have saved 15% of the cost of the bike (£150 in this example). If you are not a higher rate taxpayer I agree the advantages are more marginal, but you are still spreading the cost of the original purchase which is attractive for some people.

Secondly, depending on who your scheme provider is there may be other options at the end of the one-year hire period. Our scheme provider is Cyclescheme and here is the blurb we give to our employees about the end of the scheme:

During the first year of the scheme, the bike is technically owned by [employer], who hire it out to you. At the end of the initial year’s hire period the ownership of the bike then automatically transfers from [employer] to Cyclescheme, and Cyclescheme will contact you when the year is up to explain the options.

The default and most attractive option is:

  1. You pay Cyclescheme a refundable deposit of 3% or 7% of the original purchase price (3% if original price was below £500, or 7% if original price was above £500). This entitles you to keep using the bike for a further 3 years with no further payments. At the end of this extended use period you can either return the bike to Cyclescheme, who will return your deposit, or you can keep the bike and no further payment is due.

For completeness, the other options:

  1. You return the bike to Cyclescheme, no more money is payable

  2. You buy the bike from Cyclescheme for a Fair Market Value payment of 18% or 25% of the original purchase price (18% if original price was below £500, or 25% if original price was above £500) so that you own it outright from then on.

Please note that under the HMRC rules for the scheme, neither [employer] nor Cyclescheme are allowed to guarantee the options that are available to you at the end of the hire period. However the options presented above are the currently available options and there is no particular expectation of these changing.

More details about the end of scheme process are available at: http://www.cyclescheme.co.uk/employers/employer-faqs#/getting-a-bike/faqs/what-happens-at-the-end-of-the-hire-period

If your employer is running their own scheme or using a provider other than Cyclescheme, the end-of-scheme details may be different of course, but the details you have given are equivalent to our "option 3" which is less attractive than the "option 1" that we use as default; you could ask whether these other options are available to you with your scheme.

  • 3
    @Chris, sorry I don't understand your point. The bike costs £1000, you are a higher rate tax payer (40%) so paying the £1000 out of your gross salary is equivalent to you paying £600 for the bike. You then pay an additional 25% of the full original price at the end of the scheme (£250) meaning the total you have PAID for the bike is 600 + 250 = 850; you have SAVED £150. – Vicky May 22 '15 at 10:45
  • 5
    I also have this scheme in my workplace and I wonder if it wouldn't be a better scheme to simply say: "We'll give you back 100 GBP (or whatever amount) once you buy a new bike" instead of wasting everyone's time to read and understand the non-obvious terms and conditions? – Bartek Maraszek May 22 '15 at 11:14
  • 2
    Similar system here in Ireland. Maths work out on paper, but in practice I was unimpressed. The 'scheme provider' shop I had to purchase from charged more for the same bike I could find elsewhere. And, naturally, they didn't sell any used bicycles. I got a 500eur bicycle and only paid ~250 - but my wife got an equivalent bike for 300eur from another shop. Add to it the hassle with paperwork and monitoring the deductions from my paycheck were correct, I'm not sure I really saved anything, if you consider the time spent. – Rob P. May 22 '15 at 12:09
  • 4
    Abruptly switching the % passing the theresold isn't very nice, since it would mean that a £550 bike would be much cheaper than a £450 bike, which makes zero sense. It would be MUCH better to have a soft theresold, so that regardless of how much is the total cost, the final price is calculated using the first % for the lower part of the price, and the second % for the higher part of the price (if that's above the theresold). – o0'. May 22 '15 at 13:07
  • 2
    @Vicky Thatnks for the clarification. Your explanation is much clearer than the original post. It's a very convoluted method for sure. I'm sure the belief of there being inflated original prices at scheme stockists is true also. Lots of good intention, poor execution IMO. – Chris May 22 '15 at 13:07
2

You've already got a good answer on the numbers, so this approaches it from a different direction, the point of view of how to reach a decision.

In practice its worth it if you meet most of the following criteria (and may be worth it if you meet some of them):

  • You want a brand new bike, costing <£1000.
  • The scheme provider(s) offer a bike you want at a competitive price.
  • You are a higher rate taxpayer (greater tax benefit).
  • You're going to put the miles in (depreciation, plus it's not yours to sell if you don't get on with it). This in practice often means a cyclist wanting a new bike, rather than creating new cyclists.
  • You've got somewhere to keep it securely (check the Ts&Cs for who insures it and under what exclusions).
  • If you have something better to do with the money -- you're effectively borrowing the value of the bike interest-free, so any gains you can make on that value could become part of the equation -- assuming it doesn't just make you spend more. Prime example: offset mortgage.

Alternatively:

  • You don't have the money to just buy a bike -- if you'd be borrowing it this will be cheaper than pretty much any other way. But then a second hand bike would be more desirable.

Some scheme providers have deals like gift vouchers for free kit, improving the benefit slightly as well allowing you to spend the full £1000 limit set by HMRC on the bike itself. I think Halfords did this a few years ago, for example, they sometimes have this sort of offer on for normal buyers as well, but aren't the best place for bike fit (especially road bikes) or non-routine mechanical stuff (IME).

Even for a 40% taxpayer it's perfectly possible to look at it and walk away, especially if you can get the bike you want significantly reduced for being last year's model even though it's new, which is unlikely to happen on the scheme. Also note that you are supposed to use the bike "mainly" for work/commuting, though they admit upfront that there's no way of checking this.

  • unfortunately when I looked at it the scheme was limited in terms of max price and was useless for London commuters as you would have to buy a Brompton or folding bike. – Pepone May 23 '15 at 15:41
1

In your case it seems just about worthwhile, but in the more general case, some companies operate the scheme themselves so you don't mess around with vouchers and finding shops that accept them. My company allows us to order a bike for cash from anywhere that will provide a VAT invoice (which should be everywhere).

As the company is buying the bike rather than an individual they may also pass on the VAT saving which makes things more attractive.

As Vicky's answer points out, companies aren't allowed to guarantee that they will sell you the bicycle, but if you can wait longer and trust your employer, the amount you need to pay to buy the bike drops year by year (presumably why cycle scheme only charges 3%/7% after 3 years)

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .