Cycle to Work - 12 vs 48 months

TophatGhost

Hey folks,

I've scoured the internet and can't seem to find an answer to this question and the scheme itself isn't responding to my emails.

Basically I can see no difference in the monthly repayments when selecting the 12 month plan against the 48 month plan. Either way it comes out to the same amount.

Can someone please explain this for me?

Thanks

Aretnap

https://www.cyclescheme.co.uk/employers/employer-updates/hmrc-update
The difference is a tax dodge, basically.
HMRC insist that at the end of the loan period you pay your employer (who technically own the bike) "fair market value" for the bike. After 1 year the bike still has significant value - enough that the payment wipes out most of the tax saving you made by using the scheme in the first place.
 
So to get around this many versions of the scheme will extend the loan period, at no extra charge to you, until the bike has low or negligible value. You make the payments for a year, continue to use the bike for a further 3 years (or whatever) at no charge; then if you want to keep the bike at the end of the fourth year you only have to pay a fiver (or whatever the fair market value of a 4 year old bike is).

It sounds rather convoluted but it seems to keep HMRC happy. To you it basically boils down to: you pay the purchase price of the bike in 12 equal installments from your pre-tax salary, then make a final payment. You can choose whether you want that payment to be £250 in a year's time, or £70 in 4 years time (for a £1000 bike). If that doesn't sound like a choice you need to think about too hard, it's because it isn't. 

TophatGhost

I thought it would be something along those lines, thank you for clarifying!

alembicbassman

On C2W you pay full retail for a bike (less 20% income tax on the payment plan). You don't actually own the bike until you pay a settlement fee.
Alternatively you could find a credit card with 0% on purchases for 12/18 months, find a shop that sells used or discounted bikes and pay the card off each month.
You may be able to get a better bike that you actually own from the start. You can also sell the bike if you want to change it or upgrade. You cannot do this on C2W (although some people do - which is not allowed).

Aretnap

alembicbassman said:

On C2W you pay full retail for a bike

There's nothing in the scheme which says that you have to pay full RRP. It may be that there are some shops/scheme administrators who don't allow it to be applied to bikes that are on sale - but many (most, in my experience) do allow it.

alembicbassman said:

(less 20% income tax on the payment plan)

For most people it's actually less 32% income tax and national insurance, or 42% for higher rate taxpayers.

alembicbassman said:

You don't actually own the bike until you pay a settlement fee.

While this is technically true, in practical terms it's fairly irrelevant. Unless you work for a second hand bike shop your employer has no interest in second hand bikes; they provide the scheme purely as a staff benefit. No employer has ever wanted to check that I'm keeping "their" bike in good condition, or told me that I'm not allowed to ride it to the pub in case it gets nicked, or otherwise interfered with my use of it in any way. And while it's theoretically possible that they might not offer you the chance to take ownership at the end of the loan period, the chances of them actually wanting to keep the bike are approximately zero, because happy employees are more useful to most companies than a store cupboard full of used bikes.

The main real downside is that if you leave the employer while there are still payments outstanding you have to pay them immediately out of your pocket, which means you also lose the tax saving. How big a risk you think this is obviously depends on how stable you think your employment is.

alembicbassman said:

You may be able to get a better bike that you actually own from the start.

It is certainly possible that you'll find a better deal outside the scheme, particularly if your employer's scheme only gives you a limited choice of bike shops. But the savings offered by the scheme are quite substantial, so it's a pretty good place to start your search from.

alembicbassman

My company was doing the scheme, but I didn't fancy it.
I ended up buying a old mountain bike for £20, that I maintained myself (using youtube videos).
Commuted on it for 3 years, sold it for £50. Saved about £1000 in petrol costs.
I wouldn't say 'fair market value' on a 4 year old bike is negligible. I just sold a couple of 10 year old fairly basic bikes on ebay for £270 and £180 respectively.