Yet Another Cycling Forum
General Category => Freewheeling => Topic started by: hubner on 10 December, 2023, 01:30:23 pm
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Are those who can't buy a new bike on the Cycle to Work scheme overpaying?
Are manufacturers/importers/retailers raising prices because they know people will get quite a big discount when they buy a bike?
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Depends. The retailer isn't getting pound for pound when they accept a voucher, they lose up to 15% to the provider (Unless it's Halfords who are both retailer and provider) Margins are tight enough that they must account for that, but then a cash purchaser ought to be able to negotiate a discount knowing that even with 10% off they're likely to be putting more money in the retailer pocket than if they were paying by voucher.
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Users of the scheme are getting at worst an interest-free loan, at best a heavily subsidised bike, depending on how rigorously the "buyout" part of the scheme is calculated, which anecdotally it isn't.
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The voucher schemes are good for employers and bad for everyone else.
Delcam (who don't exist anymore, bought out by a big US firm) ran their own scheme when I worked there, I think our limit was 7.5k and providing you could get whoever you wanted to buy from to invoice you, the company would just pay them directly for the bike. And then you'd pay the company under the standard rules and tax avoidance over up to three years.
It seemed to be a much better way to run the scheme but relied on the head of finance being a cyclist.
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It also doesn't help that HMRC changes the rules last year, restricting the scope of Cycle to Work (so if you work from home you are no longer eligible to use the Scheme, whereas you had been previously).
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My wife purchased a bike on CTW. Although she got approximately 32% off rrp, when I enquired about paying cash / back I would have got similar discount off rrp.
Flawed scheme as it does nothing for the self employed.
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It has also been criticised for not covering disability-accessible cycles so well e.g. recumbent trikes and whatever as many employers won't let you buy from smaller (weirdo) bent dealers etc.
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My wife purchased a bike on CTW. Although she got approximately 32% off rrp, when I enquired about paying cash / back I would have got similar discount off rrp.
That's a retailer rip-off rather than the scheme, if they could sell to you for 30% off RRP then there's nothing stopping them from selling to someone with a C2W voucher for 20% off.
Flawed scheme as it does nothing for the self employed.
Or the low paid, those who might benefit most. Plus a company is obliged to make any scheme available for all employees (Or a comparable alternative), though they sometimes don't. If there's some in the company paid too little to take advantage, it shouldn't be available to any.
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Or the retired or unemployed.
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There are lots of people who can't benefit from the scheme, but is it actually the case that retailers and/or importers and manufacturers are raising prices because of it? I suppose one way to test this would be to compare prices internationally, but obvs lots of different factors at play.
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It has also been criticised for not covering disability-accessible cycles so well e.g. recumbent trikes and whatever as many employers won't let you buy from smaller (weirdo) bent dealers etc.
That may come down to your employer rather than HMRC. There's a limit of £1,000 for those employers without a consumer credit license. If they have one, the limit can be up to the limit of their license.
And your employers have to allow you choice of any retailer/supplier. Most of the companies that provide cycle schemes for employers don't publicise this (as I think they get a kickback from the suppliers on their lists) but you can ask them to get a bike from any supplier.
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There's a limit of £1,000 for those employers without a consumer credit license.
In 2019 the scheme changed and you now hire the bike from the scheme provider rather than your employer. There is no legal reason for there to be a limit when using a provider, though the employer may impose one. Those employers administering their own schemes are still bound by the same FCA restrictions.
And your employers have to allow you choice of any retailer/supplier. Most of the companies that provide cycle schemes for employers don't publicise this (as I think they get a kickback from the suppliers on their lists) but you can ask them to get a bike from any supplier.
I don't think that's correct either, retailers are not obliged to accept vouchers and scheme providers are not obliged to provide anything other than vouchers.
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There's a limit of £1,000 for those employers without a consumer credit license.
In 2019 the scheme changed and you now hire the bike from the scheme provider rather than your employer. There is no legal reason for there to be a limit when using a provider, though the employer may impose one. Those employers administering their own schemes are still bound by the same FCA restrictions.
And your employers have to allow you choice of any retailer/supplier. Most of the companies that provide cycle schemes for employers don't publicise this (as I think they get a kickback from the suppliers on their lists) but you can ask them to get a bike from any supplier.
I don't think that's correct either, retailers are not obliged to accept vouchers and scheme providers are not obliged to provide anything other than vouchers.
I apologise - I forgot they changed in 2019.
However, the bit about choice is correct I know, as it was an example given at a seminar on competition law and anti-competitive practice. Those operating the schemes have to give choice of supplier (although the supplier themselves may decline to accept the voucher) - so for example, Halford operate the scheme for many employers but they cannot limit it to bikes they sell. So my Mr R's new bike was got through the his trust's scheme provider, but was from a supplier not on their normal list as I he had a specific machine in mind.
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Those operating the schemes have to give choice of supplier (although the supplier themselves may decline to accept the voucher)
I think that's pretty much what I said, which isn't the same as saying "your employers have to allow you choice of any retailer/supplier." For example you can't buy a Spa Cycles bike from anywhere else and they don't participate in any Cycle to Work schemes.
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Flawed scheme as it does nothing for the self employed.
The scheme was never designed, it came out of some clever combining of some existing rules. This meant that HMRC could sanction it as a legitimate tax avoidance without any changes to the law. IIRC the existing rules include the Green Travel Plan (which allowed companies to provide employee buses and/or a bank of bikes for employees to borrow) and the salary sacrifice rules, plus the rules on write-down of capital expenditure.
Pure self-employed can't get it as they don't fit the employer/employee model for those rules, but self-employed as a one-person company can, and arguably they are a more pure fit to the rules than the finance schemes that have sprung up.
It also doesn't help that HMRC changes the rules last year, restricting the scope of Cycle to Work (so if you work from home you are no longer eligible to use the Scheme, whereas you had been previously).
Well that's hardly surprising as the point is to allow you to cycle to work. Unless you want to argue at an HMRC tribunal that you really are using the bike to get from your kitchen to your study.
Or the retired or unemployed.
Or this for the same reason. Its tax avoidance allowed for the purpose of greening travel to work.
The point about the low-paid is a valid one. There's a gap between not paying any tax to avoid, and earning enough to pay tax but not enough to be able to salary sacrifice. This is for the reason given above, without the will to create actual law and devise a scheme from the ground up, it's simply a mangling of existing rules that were never originally intended for this.
And the point about specialist bikes is also very valid. But that's an issue with employers who are unwilling to accommodate and will only allow employees to use a specific finance provider (aka scheme). There may be scope for action on that point by arguing the scheme they offer is not equal for all employees, but I imagine the result of that would likely be withdrawal of the scheme entirely by that employer.
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It would seem a lot simpler if the government could just zero-rate the VAT on bikes and have done with it.
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Well that's hardly surprising as the point is to allow you to cycle to work. Unless you want to argue at an HMRC tribunal that you really are using the bike to get from your kitchen to your study.
Prior to Covid, relatively few people worked full time from home. The rules were that the benefit had to be offered to all staff that met the income threshold. The rules were silent on those working from home so it was generally accepted they were covered as they weren’t specifically excluded.
When Covid struck and so many people were working from home, and after questions from employers, HMRC changed the wording of the guidance on the rules to specifically include those working from home. They indicated that the bikes could be used for the outdoor exercise that was being encouraged.
However, it appears the Treasury didn’t like this and, when Covid was declared over (like feck it is) the rules were changed again to specifically exclude those working from home - which remains a sizeable part of the working population.
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The savings used to be significant but are less so since HMRC stopped unrealistically low final values being agreed; sometimes savings are non-existent for basic rate taxpayers. It depends on the scheme. The best schemes pass on the VAT saving and allow an extended hire period to get the final value down to nothing (or almost nothing).
Many retailers load the price by 10% for these schemes, wiping out any savings.
It has certainly allowed manufacturers like Brompton to push prices up very quickly. The bubble has probably burst now, but a basic Brompton M3L/C-line has increased in price from £500 to £1600 in 15 years, when it would be £780 if it had followed general inflation. There are some specification improvements but that's still gouging.
TL;DR - you're probably not missing much if you can't access a scheme, but everyone has suffered from higher prices.
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the point is to allow you to cycle to work
If we apply POSIWID (https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_what_it_does) then the purpose of the scheme is to subsidise the purchase of nice new bikes by already well-paid white collar workers. The existence of any cycling-to-work is not a consideration.
People who WFH or are self-employed can rightly be miffed about being excluded from that action.
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The savings used to be significant but are less so since HMRC stopped unrealistically low final values being agreed; sometimes savings are non-existent for basic rate taxpayers. It depends on the scheme. The best schemes pass on the VAT saving and allow an extended hire period to get the final value down to nothing (or almost nothing).
Many retailers load the price by 10% for these schemes, wiping out any savings.
It has certainly allowed manufacturers like Brompton to push prices up very quickly. The bubble has probably burst now, but a basic Brompton M3L/C-line has increased in price from £500 to £1600 in 15 years, when it would be £780 if it had followed general inflation. There are some specification improvements but that's still gouging.
TL;DR - you're probably not missing much if you can't access a scheme, but everyone has suffered from higher prices.
When I bought my first bike on the scheme an Orange M6L Brompton* with every option ticked back in 2008 it cost me about £1600 and that included the bag on the front as well as shipping and loads of folks thought I'd gone mad buying this little folding clown bike. The same bike now would certainly cost a whole lot more.
the point is to allow you to cycle to work
If we apply POSIWID (https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_what_it_does) then the purpose of the scheme is to subsidise the purchase of nice new bikes by already well-paid white collar workers. The existence of any cycling-to-work is not a consideration.
People who WFH or are self-employed can rightly be miffed about being excluded from that action.
I'm not able to write a whole host of expenses against my tax like a self employed person can so it's horses for courses.
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The savings used to be significant but are less so since HMRC stopped unrealistically low final values being agreed;
That was the case for about a year, before the ink was dry on the memo the schemes had found a way around it. There was plenty of warning it was coming and it'd always been dodgy, HMRC made a clarification, no rules were changed. What happens most often now is the hire is extended for a further three years, for a 7% deposit. That's then the value of the bike (Agreed with HMRC) and ownership can be transferred, or theoretically you can return it for your deposit back.
There never were massive savings, all in probably 10 - 15% for a standard rate tax payer compared to a cash buyer. We shouldn't underestimate the value of being able to spread the cost, it isn't an insignificant sum for a lot of people, even more so if it's an E-bike. I know several people who've obtained decent E-bikes on C2W who wouldn't have been able to afford to otherwise.
Lots of faults with it, it's purpose might be viewed as greenwashing, at little cost to anyone. It doesn't provide much incentive not to drive, but it does no harm.
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It would seem a lot simpler if the government could just zero-rate the VAT on bikes and have done with it.
Don't be silly. That would make it about bikes rather than tax.
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Anecdotally, some companies appeared to allow minimal payments and waive the buyout fee, allowing people to treat as a free bike. I've seen at least one guy online bragging about getting a new Brompton every year for flipping it for a significant profit when the new one arrived.
They may have been talking shite of course, or not done their sums correctly.
it does no harm
Literally any other scheme would be fairer, but as long as this one exists and keeps the uppity middle class people who write to MPs happy, we’ll never have one.
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The savings used to be significant but are less so since HMRC stopped unrealistically low final values being agreed;
That was the case for about a year, before the ink was dry on the memo the schemes had found a way around it. There was plenty of warning it was coming and it'd always been dodgy, HMRC made a clarification, no rules were changed. What happens most often now is the hire is extended for a further three years, for a 7% deposit. That's then the value of the bike (Agreed with HMRC) and ownership can be transferred, or theoretically you can return it for your deposit back.
Yes, I went on to say that.
For our scheme, assuming a £1000 bike, you can pay 25% of the cost as a final value OR hang onto it for another five years and get it for nothing. The latter can be an issue because 1. a six year-old commuter bike is likely to be very ropey indeed and 2. I would guess that a large percentage of people change employer more often than that.
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Well that's hardly surprising as the point is to allow you to cycle to work. Unless you want to argue at an HMRC tribunal that you really are using the bike to get from your kitchen to your study.
Prior to Covid, relatively few people worked full time from home. The rules were that the benefit had to be offered to all staff that met the income threshold. The rules were silent on those working from home so it was generally accepted they were covered as they weren’t specifically excluded.
Yes, all that is true. But there were other rules in addition, one of which was that the majority of journeys on the bike had to be commuting. So technically, yes, there was nothing stopping you using the scheme if 100% WFH, but (also technically*) you wouldn't be able to ride it!
* The HMRC inspection guidance was not to bother digging into this except in exceptional circumstances.
I'm sure you're right on the other stuff, I've not read the manuals lately
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The commuting bit was never inspected where I worked! One of those rules that is impossible to assess.
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Mate of mine's commute was 60 miles each way across rural Co. Durham and Northumbria. Certainly no-one ever checked whether he was using the downhill MTB he bought via the scheme for commuting.
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That was the case for about a year, before the ink was dry on the memo the schemes had found a way around it. There was plenty of warning it was coming and it'd always been dodgy, HMRC made a clarification, no rules were changed. What happens most often now is the hire is extended for a further three years, for a 7% deposit. That's then the value of the bike (Agreed with HMRC) and ownership can be transferred, or theoretically you can return it for your deposit back.
There never were massive savings, all in probably 10 - 15% for a standard rate tax payer compared to a cash buyer. We shouldn't underestimate the value of being able to spread the cost, it isn't an insignificant sum for a lot of people, even more so if it's an E-bike. I know several people who've obtained decent E-bikes on C2W who wouldn't have been able to afford to otherwise.
Lots of faults with it, it's purpose might be viewed as greenwashing, at little cost to anyone. It doesn't provide much incentive not to drive, but it does no harm.
I've had 1 C2W bike that the provider never followed up on at the end of the hire period, to extend or return (no laughing at the back). I only ever paid/salary sacrificed the retail price of the bike (no 7% deposit). Not sure if it was an oversight or commonplace.
My other C2W bike progressed as Paul H lays out above.
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I used the scheme twice, both with Cyclescheme. First time the limit was 1k and I got my Brompton within the limit. Paid in instalments for 12 months, saved tax as the instalment comes from your pre tax salary. After 4 years they asked me if I wanted to purchase the bike, I agreed and they were supposed to charge me 70 pounds or so, but that never came out of pay slip, so probably waived.
I used it again last February, limit 2k, this time I bought a race bike, which was 2150 discounted. The shop issued a 2k voucher and the rest came as accessories (a very expensive bottle cage to you and me). We also agreed to split the cost of the scheme for the shop, which normally they absorb, but it becomes difficult if the item is already reduced price. Basically that came to another 50 pounds… considering I am paying 1.3k for 2k worth of bicycle it doesn’t seem too much.
Annoyingly, they have just increased the scheme to 3k, so I wish I waited.
I am supposed to use the bike for commuting 50% of the time.. obviously that cannot be policed and it is not clear if that means mileage or number of trips. I have used it a handful of times to commute, but the Brompton pretty much only does commutes, so overall I don’t think I am abusing the scheme.
It’s a great scheme and you should try to use it if you can. The way it is designed, you can’t lose and as someone said above, at worst it is an interest free loan.
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I was under the impression that after 12 months you can buy the bike from your employer for a token sum like £1. Then I checked, you're suppose to pay 25% of the cost of the bike! Which would wipe out most of the discount from the salary sacrifice.
I've been looking at various new bikes from retailers and brands and they all say 30-40% discounts are available under the scheme. I would guess to get the maximum discount you have to be in the high income tax bands and keep the bike for several years, which means working for the same employer during that time.
Anyhow my two main complaints are low income workers are not eligible and you have to rely on your employer to use the scheme.
The more you earn the more the discount, so the ones who need it the least get the biggest discounts.
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HMRC clamped down on the C2W scheme quite a few years ago to stop the scam of the bike being sold for a nominal amount after 1 year.
If the original purchase price was at least £500, then you'd be required to pay the following percentage of the purchase price:
1 year 25%
18 months 21%
2 years 17%
3 years 12%
4 years 7%
5 years 2%
6 years & over Negligible
https://assets.publishing.service.gov.uk/media/5dc9475440f0b64251080457/cycle-to-work-guidance.pdf
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The more you earn the more the discount, so the ones who need it the least get the biggest discounts.
That's not actually unfair, though.
A 40% taxpayer taking a £1000 gross pay cut loses £580/year.
A 20% taxpayer taking a £1000 gross pay cut loses £680/year.
That's all it is - a pay cut.
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The exchequer will forgo £420 in tax if a high-rate taxpayer wants to buy a bike, but is only willing to forgo £320 if a standard-rate taxpayer wants to buy a bike.
(And a low wage worker wanting to buy a BSO can pay for it them bloody selves)
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"Four wheels good, two wheels bad!"
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I think the scheme is designed so that everybody is a winner. The shop sells a bike, the customer saves some tax, the employer saves having to buy or rent more land for car parks and they get a small slice, if they so wish and the exchequer recoups the unpaid tax with VAT on a bike that might not have sold otherwise, as well as other long term benefits, like NHS savings.
The alternative would be to waive VAT on the bike, so everybody would save the same amount, regardless of the salary.
I find the main drawback is the opt-in for employers, whereas it should be an opt-out or not at all, since there is really no reason not to support the scheme.
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The exchequer will forgo £420 in tax if a high-rate taxpayer wants to buy a bike, but is only willing to forgo £320 if a standard-rate taxpayer wants to buy a bike.
(And a low wage worker wanting to buy a BSO can pay for it them bloody selves)
That's unavoidable as it uses existing tax reliefs. The higher rate of tax you pay, the more tax relief is worth.
To make it a more progressive benefit, you'd have to do it as a means-tested grant, probably from the government and not from the employer. The administration of such a scheme would not be simple. What if income increases or decreases during a hire period?
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The employer also saves some money as they don’t have to pay employers NI contribution on the part of the salary that is sacrificed.
I bought my C2W Brompton when the scheme just started and got the full 40% discount and after a year of payments just kept the bike, no questions asked. But those days are gone.
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What if income increases or decreases during a hire period?
Same as if someone used the scheme to buy a "race bike" they have no intention of using for commuting?
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What if income increases or decreases during a hire period?
Same as if someone used the scheme to buy a "race bike" they have no intention of using for commuting?
Like many, I am culpable here. The way I see it is that as long as I cycle to work, it is nobody’s business which bicycle I use. I happen to be on top of the maintenance, so the first c2w purchase in 2019 is still a viable option and the 2023 purchase can be the leisure bike.
I suspect the scheme leans towards selling more bikes, otherwise I wouldn’t be allowed a voucher every calendar year.
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It would seem a lot simpler if the government could just zero-rate the VAT on bikes and have done with it.
I think they should go further than this. I think UK based cycle manufacturers[1] that sell direct to the public should enjoy some tax breaks. I think import tariffs on assembled bicycles and components should be reduced for UK based suppliers/retailers too, although this should be balanced as to not put UK based manufacturers at a disadvantage.
There should be some qualifying rules for manufacturers, suppliers and retailers. At least N% of the bikes they manufacture/distribute/sell should be suitable for commuting and utility cycling. I know this is hard to quantify, but what I'm guessing is, they should have clearances and eyelets/lugs for mounting the extra hardware that makes a bike useful. And a proportion of these, should perhaps come equipped with hub gears, dyno hub, lights that meet recognised standards.
This is to both:
a) encourage the UK cycle industry to provide practical bikes for commuting and urban transport
b) avoid creating loopholes for manufacturers/uppliers/retailers that cater solely to cycle sport.
The only problem with this, is that manufacturers/suppliers/retailers may not pass the savings onto the consumer.
1: Head office registered in UK; at least 20-30% of turnover in the UK
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I think the scheme is designed so that everybody is a winner. The shop sells a bike, the customer saves some tax, the employer saves having to buy or rent more land for car parks and they get a small slice, if they so wish and the exchequer recoups the unpaid tax with VAT on a bike that might not have sold otherwise, as well as other long term benefits, like NHS savings.
The alternative would be to waive VAT on the bike, so everybody would save the same amount, regardless of the salary.
I find the main drawback is the opt-in for employers, whereas it should be an opt-out or not at all, since there is really no reason not to support the scheme.
Bike shops lose out as up to 15% of the sales price goes as commission to the Cycle scheme providers. Which can often be almost all of any profit margin the bike shop gets. The actual scheme providers are however the most profitable business going, as around 50% of their total income is profit.
Cyclescheme Ltd - £13.2 million turnover, £6.8 million profit
https://find-and-update.company-information.service.gov.uk/company/05363678/filing-history
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It would seem a lot simpler if the government could just zero-rate the VAT on bikes and have done with it.
I think they should go further than this. I think UK based cycle manufacturers[1] that sell direct to the public should enjoy some tax breaks.
[...]
1: Head office registered in UK; at least 20-30% of turnover in the UK
Surely that would just result in Trek UK, Giant UK, etc, as supposedly separate entities.
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It would seem a lot simpler if the government could just zero-rate the VAT on bikes and have done with it.
I think they should go further than this. I think UK based cycle manufacturers[1] that sell direct to the public should enjoy some tax breaks.
[...]
1: Head office registered in UK; at least 20-30% of turnover in the UK
Surely that would just result in Trek UK, Giant UK, etc, as supposedly separate entities.
If the tax advantages are greater for cycles manufactured in UK (at least the frames) and profits for UK sales are declared in the UK so what little tax they pay is paid in the UK, that means in the least they would have to operate as independant subsiduries, to get the full tax advantage. And there's no reason, if the rules are drafted sensibly, those types of entity couldn't be excluded, if it was felt that would still leave the home grown cycle industry at a disadvantage.
As I said, I think the real danger is that the tax savings are not passed onto customers.