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Cycle to Work Scheme - am I missing something?

Gem7321Gem7321 Experienced MentorDevonMAAT, AAT Licensed Accountant Posts: 1,438
It seems to me that the Cycle to Work scheme operated by Salary Sacrifice actually offers very little savings at all. Am I missing something here?
Scenario: Employer purchases bike for £600 (no VAT reclaimed in order to avoid charging VAT to employees) and hires to employee with gross salary of £1,000 over a period of 12 months.

Savings to employee: 600 @ 20% + £600 @ 12% = £192
Savings to employer: 600 @ 13.8% = £82.80

Looking OK so far.

Then at the end of the hire period employee wishes to take ownership of the bike, employer is forced to sell at FMV which according to HMRC valuation tables would be 25% of original value = £150

So the actual saving to the employee is only £42?

And the employer who has claimed AIA on the bike (which was fully offset by the increase in NP) now has some of the allowances clawed back disposal proceeds £150 @ 20% = £30

Actual savings to employer is only £52.80?

Is it really worth it? :huh:

Comments

  • NpsNps Experienced Mentor Registered Posts: 782
    In practice though it doesn't work like that. I've used the scheme via one of the biggest employers in London (so this can't just be incompetence on their part in not running the scheme correctly - I hope)! I only know the benefits for me ie as the employee. It basically works exactly like the childcare voucher scheme. I apply for a voucher for the full cost of the bike I want, I go and buy the bike, and the payments come out of my salary before tax is paid, hence I save money. This is how the scheme is marketed, no more, no less. It's only when you actually read the small print that you see all the bits about the bike belonging to the employer, and you having to buy it at the end of the period etc (though I didn't really understand that as the full value of the bike was being reclaimed from my wages, albeit before tax, so I couldn't see how my employer would have a claim to it). My employer categorically stated that the bike is mine and they have no claim over it. In all the years it has been running, and all the people I know who have purchased via the scheme, once the bike is paid off (ie. if the original voucher was for £1000, the £1000 is paid back), they are removed from the scheme and that it is the end of it.

    It's all a bit odd because the small print clearly states the extra bits but in practice it doesn't seem to happen. I know of many people in other large companies whose scheme is managed in exactly the same way.
  • BongoBongo Feels At Home HorleyRegistered Posts: 25
    This scheme is not as good as it used to be as I think the government twigged what was going on!

    You would save on VAT, Income Tax and NI and after 12 months you could transfer ownership for a nominal fee. HMRC advised me back then that anything less than 5% would be seen as a benefit.

    It was back in 2010 that HMRC announced the new guidance and we ended up extending the hire period in order for employees to save on the fair market value.

    We may have 1 employee per year that joins this scheme now, whereas before the new guidance it was 7 or 8 per year.
  • Gem7321Gem7321 Experienced Mentor DevonMAAT, AAT Licensed Accountant Posts: 1,438
    Bongo can I ask how long you extended the hire period to? 2-3 years sounds good but I believe there's a limitation under CCA which restricts to 18m?
  • BongoBongo Feels At Home HorleyRegistered Posts: 25
    We gave the option to the existing participants of extending their agreement up to 60 months.

    It was my understanding that the revised HMRC guidance applied to all existing schemes and not just
    those entered into after the date of the announcement.

    Provided that the employee was still within the term of their hire agreement we extended this by
    way of an addendum to their original contract.

    :thumbup1:
  • Gem7321Gem7321 Experienced Mentor DevonMAAT, AAT Licensed Accountant Posts: 1,438
    Thanks :001_smile:

    The guidance says that at the end of the hire agreement the employer can let the employee continue to use the bike with no transfer of ownership provided they continue to meet the tax exemption - does this mean they can continue to use the bike without paying further hire fees?

    Can any employers share their experiences of using Cyclescheme? I'm confused on the end of hire period flowchart - it says if employee no longer wishes to use the bike they return it to Cyclescheme. But if we, the employer, have paid for the bike why is it not returned to us? And I don't understand how to deal with the accounting transactions if the employee pays a deposit to continue to use the bike - is this essentially the same as a disposal but with no transfer of ownership? :confused1:
  • BongoBongo Feels At Home HorleyRegistered Posts: 25
    We use Evans Cycles, they have quite a comprehensive guide on the Ride 2 Work Scheme.

    I've attached the link for your information.

    http://www.evanscycles.com/ride2work/
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