I recently asked “Where is the saving in the cycle to work scheme?“. I had a few responses, including a few indications that I’m not alone in having concerns about the “fair value” option after 12 months and the extended hire option.
So I sent an email to the folk that run the scheme I’m in, Cyclescheme. Below is the email that I sent them:
“I’ve looked at the options and I was interested in the second option which involved the Extended Use Agreement.
However, I am concerned that at the end of this period I would still be required to pay in the region of 12% of the value, in addition to the £70 to extend the agreement. That would be a cost of £190, only marginally more than the proposed 250 of fair value.
Can I ask why have you agreed with my employer on the apparently arbitrary period of 31 months when it is possible to extend it to up to 72 months when the value would be negligible and therefore result in a zero cost to both my employer and myself? I would happily sign an agreement to that effect but not one where I am not seeing the true savings you proposed to me when I signed the agreement.
You have also overvalued my bicycle in the your valuation by a considerable margin – as you will see from the documentation, the bicycle cost £899, not the full value of the £1000 voucher issues. THe HMRC rules state that accessories, such as the shoes I bought, devalue at a greater rate and should not be included in the calculation of fair value for the bicycle hired. Thus the fair value should be around £224, not £250.
Before I commit to an outcome at the end of the salary sacrifice period, I want to make sure I am getting the best deal that is available to me within the guidelines for the Cycle to Work scheme. Please can you look into these issues for me and make fresh proposals accordingly.“
Cyclescheme have responded and they seem to think that the extended agreement is the best solution. I’ve reproduced their reply below:
“I would like to advise you that we would recommend choosing the extended hire period as you will benefit from the maximum savings.
If you choose to extend the hire period you will be required to pay the continuation deposit of 3% or 7%. You will make no further payments during the extended hire period.
At the end of the extended hire period if you wish to take ownership of the bike and equipment we will retain the deposit you have already paid as your Market Value payment.
The extended hire period contract will be between Cyclescheme and the employee directly so if you leave your employment we will continue the extended hire agreement.
I would like to advise you that the HMRC table indicated the age of a bike at 5 years is negligible, there will still have to be a transfer of monies in order for the scheme not to be seen as a benefit in kind.“
I’m not convinced it’s the best deal I could get or what the level of payment will be.
I’m also convinced that they are erroneously making their valuations on the voucher not the bike.
I’ve been asked for £70 which is 7% of a £1000 voucher. Yet, as previously stated, the bike didn’t cost the full voucher, so I’m paying more than I have to.
My accessories were a relatively small proportion of my voucher as I’m not short of cycling kit. But for someone just starting out with commuting, the cost of helmet, jacket, jersey and so on will represent a much higher proportion of the voucher.
HMRC need to address this with those running the schemes as they are overstating the amount due and knowingly doing so as they know what bike you get and what its actual value is. There is no reason for them to lazily assume that all the accessories should fall within the higher valuation.