Cycle to work scheme - is it worth it?

DragonQ

I'm starting a new job soon and they have this Cycle2Work scheme as an optional benefit. I will cycle to work and already have a (pretty crap) bike but I'm considering getting a better bike, so this scheme looked great on paper. However, after reading the details, it just doesn't look worth it at all.

Let's say I want £300 worth of bike equipment. I pay £300 out of my salary and then the company leases me everything for 12 months. At the end of the 12 months I have the option to buy the equipment outright for 18-25% of the original value.

How am I saving money if I'm paying for the equipment twice? Am I missing something here?

Cash-Cows

DragonQ wrote: »

I'm starting a new job soon and they have this Cycle2Work scheme as an optional benefit. I will cycle to work and already have a (pretty crap) bike but I'm considering getting a better bike, so this scheme looked great on paper. However, after reading the details, it just doesn't look worth it at all.

Let's say I want £300 worth of bike equipment. I pay £300 out of my salary and then the company leases me everything for 12 months. At the end of the 12 months I have the option to buy the equipment outright for 18-25% of the original value.

How am I saving money if I'm paying for the equipment twice? Am I missing something here?

You're getting tax relief so you're not paying twice. Higher rate tax payers save more. Use the various scheme calculators to work out the savings.

DragonQ

If I'm saving 32% on basic rate of tax and NI but then have to pay 25% of the original value afterwards, that's only a saving of 7% (plus I don't even own the equipment during the first year or if I leave the company). Sounds pretty pointless...I could probably do better using cashback websites.

Spidernick

Does anyone know how the calculation works? I got vouchers for £700 but my gross salary sacrifice is about £65 pcm, so around £780 for the year! I think it's something to do with an adjustment for VAT, which I understand you cannot claim the relief on, but would love to know the formula for calculating the monthly amount (my maths wasn't up to it!). I am a higher-rate taxpayer, which would affect the calculation.

As to what happens after the year is up, as far as I am aware none of my colleagues have been asked to stump up anything extra. However, I will check with a colleague who finished his 12-month payments in December 2013.

DragonQ

I contacted my future employer and they said I'd understood how it works correctly. The brochure does say that the company "may" offer the equipment for free at the end of the year (although VAT would still have to be paid on the approximate value), which is incredibly vague.

Spidernick wrote: »

Does anyone know how the calculation works? I got vouchers for £700 but my gross salary sacrifice is about £65 pcm, so around £780 for the year!

That's suspiciously close to 12%, so I would guess that your company doesn't offer national insurance relief for this scheme. Although if you're a higher rate tax payer your NI contributions at that level should be 2% I think...

Spidernick

It is salary sacrifice, so tax and NI efficient (I save 42% in total). I may try and work the formula again, as it is intriguing me!

Green_Homer

This is my experience so far of C2W:

I got a £700 voucher (though with special offers actually got £770 worth of stuff) and it breaks down as follows (to nearest £1 or as good as, as can't be bothered to do the exact calculations):

12x monthly payments of £58

Tax and NI reduced accordingly (£12 less tax paid & £6 less NI paid) = net deduction from pay - 12x monthly deductions of £38

So £240 saved in tax and NI over 12 months. Pension, Student loan payments unaffected.

At the end of the 12 months my employer gifts me the bike which counts as a benefit in kind. You then pay a % of that to the taxman..

Don't have the figures to hand but IIRC the payment to the taxman is based on the value of the equipment (i.e. the loan value).

In my case the value of my equipment was valued by the taxman to be worth 20% of its original value after 12 months so £700 = £140 value after 12 months. As a basic tax payer I then pay 20% of £140 as a benefit in kind payment to the taxman so I will pay £28.

So in total I will have paid £484 for £700 at the 12 month point. If you are a 40% rate payer then the savings are obviously greater.

Different employers will run different schemes so best to double check with your payroll / HR etc dept but in my case it was a great opportunity to buy a decent bike with accessories whilst not having to shell out all at once!

DragonQ

If the company gifts you the equipment then I can see it making sense.

dacouch

https://v.cdn.vine.co/r/videos/C57A1349521114675794535706624_247301e18e4.5.0.7357999676797180051.mp4?versionId=wXXdBjhUhe_Vx3gZhhS8sJ4LnbIKcd.n