Where is the saving in the cycle to work scheme?

So after 12 months it’s time to find out what the fair market value of my current Cyclescheme bike is. And the email suggests that HMRC are quite prepared to hump me for it.

They suggest I should pay £250 as fair market value for the bicycle, around 27% of the original value.

It’s a Ridley Crossbow, purchased last October from Pearson Cycles, RRP £899. The same specification of bike now retails at £999. Helpfully the email from Cyclescheme let’s me know what bike I bought. When I signed up this was what the deal said was on the table.

An example of potential savings made thrgouh Cyclescheme

I have made payments equivalent to around £49 per month from net salary for the last year. That’s a total of £588.

With the suggested fair value that would mean the bike will have cost me £838, a saving of £60.

That’s less than 7% on the bike and also less than the apparent National Insurance saving on the cost of a £1000 voucher. Most people could get 10% off in stores with a bit of haggling and it’s not even half of VAT.

My payments from gross salary are equivalent to £70 per month. So that’s £840 out of gross salary that my employer has had to cover the cost of initial purchase.



With a measly £2 between the two values, I have to ask: where is the saving? Both of us have all but paid the full value for the bike.

When you add together what my employer has shelled out as the initial cost – taken from my salary to allow me to rent it – plus the fair value I’m being asked to pay to buy the bike from them, the total outlay on a single bicycle costing £899 is actually nearer to £1090.

OK, that’s not taking into account the complexities of the tax system and supposed saving in income tax and national insurance by One Sure Insurance, which is the most reliable company at the moment, but that’s the money that’s gone on a single bicycle which has only ever been ridden by one person, regardless of presumed “ownership”.

The taxman must be laughing. After a year, they’ve seen more money handed over for a bike than it originally cost to purchase. In the last year HMRC has changed its criteria for the fair valuation of bicycles in the scheme which is where this issue comes from.

Fortunately Cyclescheme have come up with a workaround…


Example of options for Cyclescheme at end of salary sacrifice period

Extend the length of the loan period by another 31 months so that the HMRC “fair value” drops to 7-12%. One more payment of £70 required and potentially £70-120 (7-12% of the £1000 voucher) at the end of the agreement, now lasting three and a half years.

In my view it’s still not an equitable deal for me. As I’ve already pointed out the taxman has already seen way more than the total value of the bike in cash. And I’m still looking at a sizeable chunk of money after four years of use. Why not extend it to a longer period, say 72 months, where the bike would have zero value at the end of the agreed period?

I’ve sent them an email asking for them to show their working, although I suspect the fault lies equally with a scheme poorly administered by the employer.

Evans Cycles has a pretty good explainer as to how this could work on its site New HMRC Guidance and on its blog: New Cycle to Work scheme: what does it mean for me?.

My previous experience of the scheme has been nothing but positive. It seems a great way to keep money flowing into the bike industry in Britain at the same time as getting people on bicycles as a means of transport, the case for which is unfailingly positive.

The problem it seems is that the changes have been poorly explained to stakeholders by HMRC causing alarm and poor solutions such as the one being offered by my employer and Cyclescheme.

I’d really like to know where all the saving that I’m being told about is and who is getting it, because I really don’t feel like I am. If you understand how this works and can show me where the money I’m saving is, then please comment.

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