# New HMRC guidance on transfer fee Cycle to Work



## anyuser (11 Aug 2010)

I just came across this guidance document on the HMRC website:

http://www.hmrc.gov.uk/manuals/eimanual/eim21667a.htm

It seems that you may have to pay up to 25% at the end of 12 months to own the bicycle now. My company's scheme still says around 3%.

At 25% it doesn't seem worth joining the scheme any more, or am I missing something?

I had my heart set on one of the new Whyte Urban range......

Any thoughts?


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## DrSquirrel (11 Aug 2010)

anyuser said:


> I just came across this guidance document on the HMRC website:
> 
> http://www.hmrc.gov....l/eim21667a.htm
> 
> ...



HMRC aren't out to encourage people to cycle to work, so i'm not surprised (they never like losing any tax money ).

Considering the scheme, and YOUR COMPANY are not allowed to say they will (only suggest) they will sell you the bike otherwise it's a Hire Purchase and outside of the rules.

Government needs to make Hire Purchase allowable, with a fixed payment at the end (nothing).

Anyway, 25% will at least give you some saving - and unless you are buying a bike for the sake of it  it's still better than full price.

Though it does day up to, at least if there is some kind of cap we shouldn't need to worry - hopefully this includes the valuation system Cat A - D etc in which you can get it lower. Hopefully.



The other alternative is for your company to hire it to you, for FREE, for as long as possible. eg. So if you leave after 3 years it will be easier to get a lower % for it.


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## anyuser (11 Aug 2010)

DrSquirrel said:


> HMRC aren't out to encourage people to cycle to work, so i'm not surprised (they never like losing any tax money ).
> 
> Considering the scheme, and YOUR COMPANY are not allowed to say they will (only suggest) they will sell you the bike otherwise it's a Hire Purchase and outside of the rules.
> 
> ...





I read it that the 25% transfer fee (for bikes over £400) at 12 months would be the rate that HMRC would see as reasonable and anything lower would have to be justified. In expect my company will fall into line and the 3% example they give will become a 25% example.

So on the £1000 bike I was waiting for I would end up paying £502 over the 12 months (according to the Cyclescheme calculator) and then the transfer fee of approx £250. Total £752, so saving £248 or 24.8%. I reckon that I can save £248 or more by shopping around in the sales and avoid the Cycle to Work scheme altogether. Either that or my trusty 12 year old Gary Fisher commuter will have to last a bit longer since my budget approval at home was agreed on a £500 saving!!!!


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## DrSquirrel (11 Aug 2010)

anyuser said:


> I read it that the 25% transfer fee (for bikes over £400) at 12 months would be the rate that HMRC would see as reasonable and anything lower would have to be justified. In expect my company will fall into line and the 3% example they give will become a 25% example.
> 
> So on the £1000 bike I was waiting for I would end up paying £502 over the 12 months (according to the Cyclescheme calculator) and then the transfer fee of approx £250. Total £752, so saving £248 or 24.8%. I reckon that I can save £248 or more by shopping around in the sales and avoid the Cycle to Work scheme altogether. Either that or my trusty 12 year old Gary Fisher commuter will have to last a bit longer since my budget approval at home was agreed on a £500 saving!!!!




The irony here is, the money you give goes to the company, obviously you pay tax on that - otherwise HMRC "wouldnt care".

I still think you are worrying about "worst case", just get a Cat D quote, and/or try and keep it under company name for as long as possible. Post back here though when its actually up with your experiences (also is this a 3rd party scheme or direct?).

Sadly - your company cannot agree a % like the wife


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## anyuser (11 Aug 2010)

DrSquirrel said:


> The irony here is, the money you give goes to the company, obviously you pay tax on that - otherwise HMRC "wouldnt care".
> 
> I still think you are worrying about "worst case", just get a Cat D quote, and/or try and keep it under company name for as long as possible. Post back here though when its actually up with your experiences (also is this a 3rd party scheme or direct?).
> 
> Sadly - your company cannot agree a % like the wife




Yes, I think you are right. The company scheme is with cyclescheme. The bike I am looking at isn't available until Sept so will probably still get it then and see what happens in 12 months. The company may not even notice the guidance before then.


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## DrSquirrel (11 Aug 2010)

Do you know if yoru company has transfered ownership to cyclescheme? otherwise you will get a buy or pay to dispose option.

Also, if ownership has been transfered (people are talking about being billed by cyclescheme which means ownership must have been transfered) then you have no option for "free hire".


I would ask your company for free hire if you cannot get your 3% (which surprises me as I thought the minimum was 5%)


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## anyuser (11 Aug 2010)

DrSquirrel said:


> Do you know if yoru company has transfered ownership to cyclescheme? otherwise you will get a buy or pay to dispose option.
> 
> Also, if ownership has been transfered (people are talking about being billed by cyclescheme which means ownership must have been transfered) then you have no option for "free hire".
> 
> ...



HR say they own the bike and the final payment is made to the company so it does not look like they have transferred ownership. The benefits portal still gives the example of 3% but I am guessing they do not update it very often.


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## dodgy (11 Aug 2010)

Are the rules (or at least the enforcement of the rules) being retrospectively applied to all on the scheme? I bought my bike last November/December.


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## Shadow (11 Aug 2010)

anyuser said:


> I just came across this guidance document on the HMRC website:




I hope you were looking for something specific on the HMRC site and not there for fun!!!!


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## anyuser (11 Aug 2010)

Shadow said:


> I hope you were looking for something specific on the HMRC site and not there for fun!!!!



I was certainly not there for fun




, just researching the Cycle to Work as I had heard about the final payments going up and I am close to ordering my vouchers. I will probably order in Sept as the bike I fancy is only available then.


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## fossyant (11 Aug 2010)

Well, if that's been published by HMRC, you can bet that valuation will come in, which makes the scheme no use to employees of organisations that can't claim VAT back, and not much benefit to those who can discount the VAT.....

Also note the remarks about high value or bespoke bikes........


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## JoysOfSight (11 Aug 2010)

Well, the good news is that they are still massively undervaluing most bikes - I'd happily take most £1000 scheme bikes, especially if lightly used, for £250 and then sell on eBay at a healthy profit 

On the other hand, it is a lot more than the token £30-50 that people have been paying so far!

They've also formalised what they will require if you propose to pay less than £250 - I imagine that (for example) a lot of people with dodgy BB / headset / hub bearings will be able to try deducting the cost of servicing/replacing them, etc.


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## fossyant (11 Aug 2010)

Hold on.... you've already paid for a fair amount of it..

My case - over 12 months I paid £696 for the bike (£1000 but no VAT relief)
Final Purchase £58 - TOTAL £754 for a £1000 bike - which is OK and I lost over £100/£150 in bike business travel miles

If that was £696 plus £250 = £946. Not much point


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## anyuser (11 Aug 2010)

fossyant said:


> Hold on.... you've already paid for a fair amount of it..
> 
> My case - over 12 months I paid £696 for the bike (£1000 but no VAT relief)
> Final Purchase £58 - TOTAL £754 for a £1000 bike - which is OK and I lost over £100/£150 in bike business travel miles
> ...



Also you can save more than that at most London cycle shops if you are an LCC member. 10% discount is often given on new bikes.


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## jack the lad (11 Aug 2010)

fossyant said:


> Hold on.... you've already paid for a fair amount of it..
> 
> My case - over 12 months I paid £696 for the bike (£1000 but no VAT relief)
> Final Purchase £58 - TOTAL £754 for a £1000 bike - which is OK and I lost over £100/£150 in bike business travel miles
> ...



If, for tax reasons, there has to be a substantial charge for the bike at the end of the hire period this should be reflected in a lower hire charge otherwise you are paying your employer in full for the bike via the hire charge (you lose 100% of the wages) and then paying again on top of that. Schemes should be redesigned so that the overall cost is pretty much the same as it is now and, if they don't, it is either unfair or pointless or both.


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## fossyant (11 Aug 2010)

jack the lad said:


> If, for tax reasons, there has to be a substantial charge for the bike at the end of the hire period this should be reflected in a lower hire charge otherwise you are paying your employer in full for the bike via the hire charge (you lose 100% of the wages) and then paying again on top of that. Schemes should be redesigned so that the overall cost is pretty much the same as it is now and, if they don't, it is either unfair or pointless or both.




Problem is it's a lease with no right of ownership at the end - if there was, it would be classed as a benefit in kind - so no allowance should or could be made for a 'buy back'. I have a feeling the scheme won't be with us long.

For me it was a useful way of getting a new bike for work which passed the 'missus seal of approval'


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## fossyant (11 Aug 2010)

This issue has been picked up by one of our Senior Finance Managers already.......... - may even mean a tax liability for me.  We've now got to look into the issue PDQ


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## fossyant (11 Aug 2010)

The grape vine at work has picked up on this - real bummer !


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## fossyant (11 Aug 2010)

I wonder if I can deduct the new rear wheel, 2 x chains, 1 x sprocket, 1 x tyre and 1 x bar tape of my tax bill - adds up to about £200


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## fossyant (11 Aug 2010)

Oh and here is what happens if you've paid the nominal 5 or 10%  

http://www.hmrc.gov.uk/manuals/eimanual/EIM21667.htm


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## LOGAN 5 (11 Aug 2010)

Our company is just about to launch the Bike2Work Scheme. I rang this firm up and was told that the buy back would only be around £20 for a £1000 bike after 12 months and unlike Cyclescheme they don't make money from the sale only in the initial purchase via some kind of commission fee from the retailer. Don't really understand how they can charge this when the HMRC is saying something entirely different as is Cyclescheme with their final ratings codes etc which again Bike2Work don't use.


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## fossyant (11 Aug 2010)

You will find everyone has to fall in line with HMRC's guidance - what the Tax Man Says...Goes

I'd get your employers to check PDQ before you sign up.


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## jack the lad (11 Aug 2010)

The answer seems to be to have longer hire periods, but that increases the risk for scheme providers and make more work to deal with staff who leave. I guess more employers will just not bother because of the hassle.

I'm waiting for a voucher now - should I cancel? It might still be the cheapest way of buying a new bike, but if the savings are less than when I applied, I'm not sure I can afford a new bike any more!


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## adscrim (11 Aug 2010)

The HMRC guidance is not saying the x% has to be charged on transfer, it says that the employee should be taxed on the advised percentage less the costs of transfer. They don't care how much you pay for it, just that you are taxed appropriately. 

Of course, that's not to say that some scheme providers/employers won't just say "tax man says x, we're charging x".


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## anyuser (11 Aug 2010)

I am still going to apply. I should still save almost 25% of the bike cost even after paying the 25% final value fee, assuming the company charges me that in 12 months time. I can only probably save 10% by using cash in a shop using my LCC card.

And, as adscrim says, if they charge me the lower rate of 3% I will only have to pay tax on the difference.


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## DrSquirrel (11 Aug 2010)

Considering cyclescheme only pays the shop 90%, there is a chance the shop will give YOU a 10% discount.

(some places will only cover 90% of your voucher for this reasons, overs will only sell at RRP etc).

Considering your company is using cyclescheme, I would avoid imo.


You talked about "HR said they own the bike", yet you are about to order new vouchers? new as in a second set?


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## anyuser (11 Aug 2010)

DrSquirrel said:


> Considering cyclescheme only pays the shop 90%, there is a chance the shop will give YOU a 10% discount.
> 
> (some places will only cover 90% of your voucher for this reasons, overs will only sell at RRP etc).
> 
> ...



I am not in the scheme yet, haven't ordered my voucher yet. I should have said HR said they would own the bike.


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## JoysOfSight (12 Aug 2010)

jack the lad said:


> Schemes should be redesigned so that the overall cost is pretty much the same as it is now and, if they don't, it is either unfair or pointless or both.



Even if you paid back a full £1000 on a £1000 bike, it would hardly be unfair or pointless.

Imagine if bike to work had never happened, but instead the government had set up a mechanism whereby you can buy a bike over 12 or 18 monthly payments, arranged via work and deducted automatically from your salary, *interest free*.

That would still be a good deal, and it's why my better half is about to take up a £1000 Cyclescheme voucher, even though she might end up paying £250 to take ownership after paying £6-700 through the salary sacrifice. She can't afford to lay down a grand up front, but still wants a decent bike.

In that respect, there is still value in the scheme. I might even argue that it's a better use of my tax money, subsidising interest-free loans to employees who can't afford to pay all at once, VS people who want *another* Planet X carbon TT frame for a tiny fraction of market value.

(I should disclose that I have had a bike through Cyclescheme, myself. And yes, it was an extravagance at the taxpayers' expense!)


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## mark i (12 Aug 2010)

I think that it is a real shame. The problem comes when the bike is very well maintained, or holds it's value well. Say you bought a brompton folder, they hold value well, so if you lease the bike at cost - tax over 12 months, then pay the fair market value you could pay more than the cost of the bike. You have to factor in an effective 12 month loan, but there are less variables when you buy from the start. You are also more likely to get a discount from the bike shop at an appropriate time of year if you do not use cycle scheme.


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## JoysOfSight (12 Aug 2010)

mark i said:


> The problem comes when the bike is very well maintained, or holds it's value well. Say you bought a brompton folder, they hold value well, so if you lease the bike at cost - tax over 12 months, then pay the fair market value you could pay more than the cost of the bike.



No, at least in that respect there's nothing to worry about. HMRC have said that they will accept a valuation of 25% no questions asked, so you will never end up paying more than RRP.

However, it's a good point that you will get a better deal than RRP anyway by shopping around. If you can afford to buy up-front, I suppose it's possible that you might be better outside the scheme.

But then, is it a big loss if only people who can't afford to buy a bike up front are getting a handout? My soon-to-be father in law has a free bus pass and gets a good deal of money through the winter fuel allowance. He's still working as a surgeon in the NHS!


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## Bromptonaut (13 Aug 2010)

Thanks to the OP for flagging this. My employer, a large govt department, has insisted on a shop valuation right from the point the scheme was introduced in 2008. Apparently our inspector had always been a stickler. He made clear in set up discussions that he was unlikely to sign off 'month 13' payments as representing market value.

However, once leases finished it became apparent that LBS's were reluctant to commit to a written value for reasons of liability. The original supplier (Wheelies) would not assist with either. 

The matrix valuations look reasonable to me and I can now see exactly what my Brompton M6R will cost at any point in the next half decade. 

There is however a possible silver linnig to this cloud. The wording of HMRC's document mentions the transfer of the bike to the employee. This would create a tax liability as a benfit in kind for which the employee would be liable but that would only be the basic (or higher rate) tax on the market value rather than the full sum. 

If the employer's business case for the scheme took account of income from purchased bikes, or they were in the Cyclescheme set up where the bike reverts to the supplier who has an incentive to make money, this won't work. However if the employer has no interest in the income and, as may well be the case in govt, banking staff's cash/cheques incurs a significant processing cost then it may be a 'win/win'.


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## GrumpyGregry (13 Aug 2010)

Problem for us would be why would justifying to non-schemem members why our employer would choose to give certain employees a £200 (£250 less what we pay now; £50 to transfer) benefit in kind out of the goodness of their hearts. Esp when a significant propotion of scheme bikes have not ever graced the workplace.

My lever(s) will be 

a) the scheme members here told the employer (via HR & Finance) about the change in the HMRC rules - openness, honesty and integrity.
b) the scheme members who 'fessed up cycle to work regulalry rather than (over) filling up the already crowded car park thus saving us money on car park expansion.
c) a certain aitch arr department contains some of the scheme members who have never ever ridden their cycles to work sfaik.


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## actonblue (13 Aug 2010)

My repayments are over 18 months so what valuation would HMRC expect after this period of time?


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## Downward (13 Aug 2010)

a photograph of the cycle demonstrating its condition along with a description of any important aspects of its condition that are not evident from photographic evidence, Easy enough to find a picture of an old bike - I mean how will HMRC know what model Trek it is from pics of the chain,brakes,tyres etc ?!!
broad details of the extent of usage of the cycle (which can vary considerably even between cycles that meet the “qualifying journeys” main use condition for exemption), and Screw that my bike is cleaned as it lives in the house but that's at a cost to me to maintain it over say a person who has just left their bike untouched. If mine wasn't touched in 1 year it would look like crap and needing parts replacing.

contemporaneous evidence of the amount for which that type of cycle in that sort of condition would have realised in a private sale and in a sale to a cycle retailer. Subjective to say the least.


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## Peter10 (13 Aug 2010)

Where I work they charge the full 25% regardless. I enquired recently about C2W and they basically said that if I buy a £1000 bike and pay £75 a month (£900) I would then have to pay another £250 (25% )to buy the bike, so a total of £1150 for a £1000 bike. It would have been cheaper to get a 0% finance a few local shops are offering at the moment.


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## mcshroom (14 Aug 2010)

Well I've just priced my bike up as about £450 for a £500 bike on that table. I sort of expected it to be £500 with all the rumours around when I joined the scheme so I assumed that the C2W would just be an interest free credit.

Annoying that they set the limit at £500 though. If they'd done that before the bike was purchased I'd have had it knocked down to £499.99 and saved £40.






Also our company information still said "usually around 5% of the purchase price', so I think quite a few people are not going to be happy when an extra £200 is asked for at the end.


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## Norm (14 Aug 2010)

Peter10 said:


> Where I work they charge the full 25% regardless. I enquired recently about C2W and they basically said that if I buy a £1000 bike and* pay £75 a month (£900)* I would then have to pay another £250 (25% )to buy the bike, so a total of £1150 for a £1000 bike. It would have been cheaper to get a 0% finance a few local shops are offering at the moment.


Only you wouldn't pay £75 per month any more than you buy the £1000 bike. 

You'd sacrifice salary of £75 a month, which would cost you around £40 a month (depending on personal tax circumstances) so the total price you would pay for the rental and subsequent purchase of a bike which your employer paid £1000 to buy would be £480 + £250, which is £730. Not a bad deal when you include the interest free loan.

It sounds like your employer, Peter, has seen the light in not charging the full purchase price of the bike in rental payments. They are still getting more than their share of the tax benefits but I think they are more enlightened than anyone else I've seen reported. 

If they were asking for a salary sacrifice of £62.50 per month, that would be getting towards the sort of solution which I mentioned on here several months ago.


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## Downward (14 Aug 2010)

After all the gubbings it's still going to be a 25% saving on your bike and a 12 month Interest free loan to boot. Ok so you may shop around for a deal but I have yet to see last years models being sold for 25% off on Interest Free. 
Plus at least you do get the latest model although the prices seem to be increasing each year while the spec stays the same.

If anyone can find me a Trek 1.5 C 2010 model for £600 on Interest free then please let me know !


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## Downward (18 Aug 2010)

Well just had an Invoice from Cyclescheme for final payment to transfer ownership of bike to myself.

They have charged roughly the same amount as 1 monthly payment (£58.75 of a £1000 voucher)


That's my lot got 2 bike via the scheme and that's plenty for me.


The new paperwork from Cyclescheme now make no mention of transfer of ownership it's purely a 12 month hire agreement now.


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## Bromptonaut (18 Aug 2010)

Downward said:


> Well just had an Invoice from Cyclescheme for final payment to transfer ownership of bike to myself.
> 
> They have charged roughly the same amount as 1 monthly payment (£58.75 of a £1000 voucher)
> 
> ...




Given the new guidance you/your employer my find HMRC revisiting the deal @£58.75 and coming back for more!!


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## Downward (18 Aug 2010)

Bromptonaut said:


> Given the new guidance you/your employer my find HMRC revisiting the deal @£58.75 and coming back for more!!




Not my problem Cyclescheme owned the bike and sold it to me.


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## Bromptonaut (18 Aug 2010)

Downward said:


> Not my problem Cyclescheme owned the bike and sold it to me.




Hopefully nothing will come of it but if this was a C2W bike then, irrespective of the involvement of Cyclescheme, the transfer to the employee must be at market value. If it was not you have received a benefit in kind to the extent of the gap between your payment and the actual market value. You are taxable on that benefit. If HMRC call for the money it is *your* problem. 

And in making that point I'm not trying to be combative or 'clever'; just pointing out the facts as they are on the ground.


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## BentMikey (18 Aug 2010)

Put £100 extra in your savings against the possibility that HMRC will ask for tax on benefit in kind, and forget about it.


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## Norm (18 Aug 2010)

Bromptonaut said:


> Hopefully nothing will come of it but if this was a C2W bike then, irrespective of the involvement of Cyclescheme, the transfer to the employee must be at market value. If it was not you have received a benefit in kind to the extent of the gap between your payment and the actual market value. You are taxable on that benefit. If HMRC call for the money it is *your* problem.
> 
> And in making that point I'm not trying to be combative or 'clever'; just pointing out the facts as they are on the ground.


I'm not sure that the facts are like that, and the involvement of Cyclescheme cannot be discounted in this arrangement.

As Cyclescheme are a third party, they can set the prices as they wish. There is no contract nor obligation on them to sell at a particular price. The price which they charged Downward is not a benefit to Downward as an employee. 

To put it slightly differently, as Downward's purchase was from Cyclescheme, it is no more a benefit of his employment than it would have been if he had negotiated a discount with his LBS.


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## adscrim (18 Aug 2010)

Bromptonaut said:


> Hopefully nothing will come of it but if this was a C2W bike then, irrespective of the involvement of Cyclescheme, *the transfer to the employee must be at market value*. If it was not you have received a benefit in kind to the extent of the gap between your payment and the actual market value. You are taxable on that benefit. If HMRC call for the money it is your problem.
> 
> And in making that point I'm not trying to be combative or 'clever'; just pointing out the facts as they are on the ground.




That's not the case. The employee must be taxed in relation to the full market value at transfer, or the 25% (or whatever) that is now being mentioned. It is perfectly within the HMRC guidance for an employer to transfer the asset at £5 providing the employee pays tax and national insurance on the remainder up the to FV assesment - about £80 on £245. Total final payment being around £85 and substantially less that the £250.


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## ChrisKH (18 Aug 2010)

Bromptonaut said:


> Hopefully nothing will come of it but if this was a C2W bike then, irrespective of the involvement of Cyclescheme, the transfer to the employee must be at market value. If it was not you have received a benefit in kind to the extent of the gap between your payment and the actual market value. You are taxable on that benefit. *If HMRC call for the money it is your problem.
> 
> *And in making that point I'm not trying to be combative or 'clever'; just pointing out the facts as they are on the ground.



In practice, that will not happen and I will tell you why. You have relied on your employer to administrate the scheme efficiently and within the rules. The fact they have failed to charge you the market value of the bike is a failure on their part. HM Revenue and Customs will pursue the employer for their failure to complete form P11d properly (for which there is a wacking penalty of £3,500 per employee or something) and the employer will negotiate a settlement with the Revenue to save any further enquiries into their PAYE matters. In the event that the Inland Robbery pursue you for any aspect of the transaction all you need do is say you relied on your employer to issue form P11d with the correct amount of benefit (ie the difference between the sale value and the market value) and as this was not on your form P11d, you did not benefit. It's a technicality, but by virtue of having no form P11d or no entry on form P11d you should be able to escape tax. That's my view anyhow. I have never seen an employee being pursued for a non existent entry on a P11d i.e. an unrecorded benefit. Since by definition if it is unrecorded it is a failure on the part of the employer not the employee.

The end result is employers pulling out of Cyclescheme arrangements or starting to charge market value, since the cost of default (investigation, penalty, interest, professional advice) is much higher.*

*Or as someone has intimated they can include the benefit on form P11d, you pay the tax (usually via your tax code or tax return filing), they pay Class 1a National Insurance and everyone escapes censure.


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## 2Loose (18 Aug 2010)

adscrim said:


> That's not the case. The employee must be taxed in relation to the full market value at transfer, or the 25% (or whatever) that is now being mentioned. It is perfectly within the HMRC guidance for an employer to transfer the asset at £5 providing the employee pays tax and national insurance on the remainder up the to FV assesment - about £80 on £245. Total final payment being around £85 and substantially less that the £250.



This is the point made in this article, and pretty much it has worked at my place. Find the FMV, but actually pay the tax on that, rather than the FMV.


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## Bromptonaut (18 Aug 2010)

2Loose said:


> This is the point made in this article, and pretty much it has worked at my place. Find the FMV, but actually pay the tax on that, rather than the FMV.




What I meant was broadly what adscrim says. The transfer must be at market market value if it is not to create a tax liability. The option of taking the bike at nil/under value and paying the tax is one I'm exploring with my employer at the moment. 

Chris KH's account is very intersting and explains why, given a very picky inspector, my bosses have been so careful over this.


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## adscrim (18 Aug 2010)

I'll be interested to see how they deal with my cycle to work transfer - already owning a commuter, a wet bike, a dry bike and a mountain bike, I spent a large sum, through the scheme, on accessories (lights, a jacket, baggy shorts, bib knickers, windproof gillet, gloves and a saddle). I can see it going two ways, FV will be deemed negligible or without guidance, set at 25% for all!


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## MartinC (18 Aug 2010)

Bromptonaut said:


> What I meant was broadly what adscrim says. The transfer must be at market market value if it is not to create a tax liability. The option of taking the bike at nil/under value and paying the tax is one I'm exploring with my employer at the moment.




As I understand it the point Norm was making was that at the end of the scheme the transfer is from the Employer to Cyclescheme to dispose of the bike as part of their service in administering the scheme. If Cyclescheme choose to sell it to the Employee (at whatever price) then the Employee isn't receiving a Benefit in Kind.


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## Norm (18 Aug 2010)

Bromptonaut said:


> What I meant was broadly what adscrim says. The transfer must be at market market value if it is not to create a tax liability. The option of taking the bike at nil/under value and paying the tax is one I'm exploring with my employer at the moment.


Although that is still irrelevant if Cyclescheme do take ownership.

Rats... Martin beat me to it.  

Market value of accessories should be pretty negligible, adscrim. How much would you pay on ebay for a 12 month old gloves and bib shorts?


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## Bromptonaut (18 Aug 2010)

Norm said:


> Although that is still irrelevant if Cyclescheme do take ownership.
> 
> Rats... Martin beat me to it.
> 
> Market value of accessories should be pretty negligible, adscrim. How much would you pay on ebay for a 12 month old gloves and bib shorts?



Norm, 

You and Chris KH clearly know far more about this stuff than I do. However, if the asset were more valuable than a s/h bike I cannot see the revenue allowing it's intervening transfer to a third party to be seen as anything other than an avoidance device.

Why different in this case?


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## Downward (18 Aug 2010)

Norm said:


> Although that is still irrelevant if Cyclescheme do take ownership.
> 
> Rats... Martin beat me to it.
> 
> Market value of accessories should be pretty negligible, adscrim. How much would you pay on ebay for a 12 month old gloves and bib shorts?




All that happens with CS is that you loan the bike from the employer, They transfer bike to Cyclescheme. Cyclescheme now own the bike. They offer me the chance to buy it or dispose of it.
Simples.

It's up to HMRC to sort it out with cyclescheme who are making 15% per voucher so have plenty of money if they fair market value is deemed to be 25%


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## Norm (18 Aug 2010)

Bromptonaut said:


> Norm,
> 
> You and Chris KH clearly know far more about this stuff than I do. However, if the asset were more valuable than a s/h bike I cannot see the revenue allowing it's intervening transfer to a third party to be seen as anything other than an avoidance device.
> 
> Why different in this case?


From the bits I've seen, it is different because (prepare for grey area) the transfer is not for the purpose of tax avoidance. 

There's plenty of scope for argument from either side but my understanding is that a case could be made that the transfer is to improve the scheme's offerings to employees by making a broad range of brands and suppliers available, to reduce administration, to improve cash flow and to minimise the disposal costs of what would be, to most employers, a low value asset. 

Because there are a number of valid reasons for the disposal to Cyclescheme, HMRC would be pretty hard-pressed to prove that the disposal to Cyclescheme was just for tax avoidance. Other than a few posts on these pages, have you seen anything which suggests Cyclescheme acting as a intermediary helps reduce the tax liability? Cyclescheme are, IMO, being pretty canny about that benefit.


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## Fairweather99 (29 Oct 2010)

It sounds like there is still a good saving, if like the others have mentioned you just pay the tax on the 25% FMV at the end of 12 months and the company waive the payment. i.e. you get taxed on the amount that you didnt pay the company as a Benefit in Kind. But what's the case if they don't sell it to you (either the employer or cyclescheme). Presumably you've suffered about 50% of the original price for the right to borrow the bike for a year. That can't be right can it? The company get fully reimbursed and then get to keep your bike?

The optimal would be for the employer to pass on the NIC saving too and deduct only 87.2% of the original net price after deducting VAT, then even if they profit from selling you the bike for 25% then you'll be quids in by having only paid about 68% after tax benefits - as long as you get the maximum VAT and higher rate tax benefit. If they don't sell it to you, the 43% or so is still enough to be peeved about if they take it away from you after a year though.

Finally - anyone know whether the 25% to be charged by the employer is inclusive of VAT? If so the taxman is clawing back 5% of the original value in VAT after the rate rise to 20%. If the 25% is plus VAT then we are in a whole different set of numbers....

Any thoughts?


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## jack the lad (29 Oct 2010)

I think some of you are mixing up two different things here so you are in danger of getting your sums wrong or of paying over the odds..

The HMRC guidance is, paraphrasing, that a year old bike is worth 25% of its list price. So, if your employer only charges you 5% of the cost of the bike to buy it off them you are beng given 20% of its value - and that is a taxable benefit. You MAY be charged tax on that 20% - , but the tax is only a percentage (22%) of that 20% - roughly another 5% of the bike's value. If this happens it will have cost you 10% of its list pirce to buy, not 25%. Its a bit higher (13%) if you are a higher rate tax payer - but then you've also saved more on the 'rental' period.

If your employer or cyclescheme or whoever want to sell you the bike for 25% to save you the tax liability you should not just accept that. It is a lot cheaper for you to pay your employer 5% and potentially HMRC the tax on 20% than to pay your employer 25% and no tax! Your employer/cyclescheme have alread been paid in full for the bike (and admin costs) so they have no grounds to claim more than a nominal amount from you! It is just profit for them.


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## Gary Cummins (29 Oct 2010)

I may have missed something in earlier posts, but I understand that an important point about the scheme is that the period of salary sacrifice, which is the agreed monthly payment period, does not have to be the same length of time as the agreement to hire the bike.



This means that the bike loan payments can still be undertaken over 12 months, but hire and use of the bike can continue for a much longer period of time without any extra charge up to 72 months, at which point the bike should have no value and should be transferred to the owner at no cost.

I did despair when I first saw the revised tables, but this detail above still makes the scheme attractive.

Apologies if this has been covered already.


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## primalgeek (29 Oct 2010)

Gary Cummins said:


> I may have missed something in earlier posts, but I understand that an important point about the scheme is that the period of salary sacrifice, which is the agreed monthly payment period, does not have to be the same length of time as the agreement to hire the bike.
> 
> 
> 
> ...



Yes, no transfer of ownership is required at the end of the salary sacrifice period. Also note that there is no requirement for your employer to recover the full cost of the bike via salary sacrifice. In fact I know of a few one person LTD companies (i.e. contractors) that buy a bike via C2W and don't apply salary sacrifice at all (in other words 'salary plus').

For example an employer could recover 75% of the cost of the bike during the 12 month period and (optionally) transfer the ownership of the bike to the employee for 25% of it's original value.

See the DfT guidance here: http://www.dft.gov.u...nce/pdf/518054/


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## anyuser (29 Oct 2010)

Gary Cummins said:


> I may have missed something in earlier posts, but I understand that an important point about the scheme is that the period of salary sacrifice, which is the agreed monthly payment period, does not have to be the same length of time as the agreement to hire the bike.
> 
> 
> 
> ...



This is exactly what my employer has decided to do, so my new bike should arrive in less than 2 weeks as I decided to join the scheme.


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## 400bhp (29 Oct 2010)

anyuser said:


> This is exactly what my employer has decided to do, so my new bike should arrive in less than 2 weeks as I decided to join the scheme.



And mine.

However I have the option to buy the bike after a year if I so wish which I will take up.


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## Martok (8 Nov 2010)

Well my 12 months is up on my bike from CycleScheme and I've just had an email from them with the options (as my employer has transferred the ownership of the bike to them).

The total value of the bike (Trek 7200) and equipment was £734.91 (the bike was £399).

CycleScheme are quoting me 3 options:


Return the bike and equipment to them (at my own cost)
Extend the use period for another 30 months for a one-off cost £51.44 (after that time they will offer the bike at market value)
Purchase the equipment for £183.73

Needless to say I am shocked at the figures quoted!

I seem to recall, and this appears to be backed up by searches on the Internet, that when I took out the scheme in September last year the CycleScheme website was quoting the market value to be around 5% of the total paid for the bike and equipment.

The new figures seem to have been derived from here:


http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm

and apply to anyone in the scheme where the initial 'Hire Period' ended after 6th August 2010 - see http://www.cyclescheme.co.uk/employer,intro.htm



So, my question is, can CycleScheme change what they are to offer for market value on bikes through the scheme for those already on it? Is this legal? I'd certainly have thought twice about taking out the scheme if I had known what they would offer me now (and I'm glad that i have bought my Secteur Elite not using the scheme).

If I'm stuffed with this then I'll likely go for the extended hire option as that will be cheaper in the long-run, though I'm stuck with the bike until the end of this. However I'll argue over the figures before I pay, especially as my cycle helmet is part of the equipment and as it states on the HMRC website "Where used regularly for commuting and/or travel between workplaces, safety equipment worn by the cyclist is likely to have a market value that is lower than the table percentages for a cycle and cycle-based safety equipment."


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## dellzeqq (8 Nov 2010)

DrSquirrel said:


> Considering cyclescheme only pays the shop 90%, there is a chance the shop will give YOU a 10% discount.
> 
> (some places will only cover 90% of your voucher for this reasons, overs will only sell at RRP etc).
> 
> ...


I think this is a very important point. The people who bundle the schemes together are making the big money - they insist on a 10% rebate from the shop. Most bike shops would rather give the 10% discount to the person that's going to ride the thing, and if the financial benefit of being in the scheme are minimal then I'd imagine that most purchasers would rather have a bike that is theirs, rather than one that belongs to their employers.


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## GrumpyGregry (8 Nov 2010)

The rules have changed mid scheme period for many of us. Such is the way with HMRC, it isn't down to an employer or to a scheme administrator. VAT goes up in january, income tax rates may change, blame the govt. not the employer.

sfaik cyclescheme don't own the bike during the scheme but I guess your employer can do as they please with it when the hire period ends, and what you've suggested gives cycescheme the chance to make more bunce!

Originally at my workplace we were to be offered a choice of

a) pay the 25%
b) retain a repayment period of 12 months but extend the hire period to 24- or 36-months with the appropriate reduction to resale value applied at the end of that 24- or 36-month period
c) pay the 5% and get the remaining 20% as a taxable benefit-in-kind which is declared via P11D

I talked all three over with the HMRC auditor who was in recently. As the most senior person at our place on the scheme I more or less veto-ed c) Why the heck should one group of employees get a benefit-in-kind for no good reason and incur extra expensive admin for finance as they/I would not be otherwise getting P11D's raised?

So we've gone with a) or b) at the individual scheme members choice for this year. New starters will be offered the same choice, and we are about to have a big big push to reduce motor vehicle commuting, given we are a 15 min walk from a mainline railway station, as part of a greening the org. agenda.

It is now simply a 0% finance scheme as far as I am concerned. There is no other financial benefit/saving to be had (as we don't get the VAT element off the price of the bike).

Come May if I can walk into an LBS and get a tidy Brompton or other quality folder (next on the list) for £1000 with a 10% discount off list and 0% finance then I may buy that way. Don't think it is likely many such deals will be available.

I don't have huge sympathy with bike shops getting stiffed for 10%. First these are often sales they would not otherwise have made, and second my sources (2 x owners of local independent shops) tell me they still make a profit on selling 'last years' bikes at a discount considerably higher than 10% so they aren't sobbing into their beer about the scheme.


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## redjedi (8 Nov 2010)

Martok said:


> Well my 12 months is up on my bike from CycleScheme and I've just had an email from them with the options (as my employer has transferred the ownership of the bike to them).
> 
> The total value of the bike (Trek 7200) and equipment was £734.91 (the bike was £399).
> 
> ...



I'm not too keen on this new method for working out fair market value. 

But if your employer is working by the new regulations (which I think they are allowed to do), then they should only be working out the final payment based on the cost of the bike and safety equipment attached to the bike (ie lights)




> In calculating the original price of the cycle, include safety equipment fitted to the cycle (such as lights and bells) *but not safety equipment which would be worn by the cyclist (such as helmets or reflective clothing)*. Where used regularly for commuting and/or travel between workplaces, safety equipment worn by the cyclist is likely to have a market value that is lower than the table percentages for a cycle and cycle-based safety equipment.



How much was the bike plus lights? If it's less than £500, then you are eligible for the 18% bracket not the 25% they are quoting.

If you're over the £500 value (or even if you're not), then you could take the extra *31* month lease and pay the 7% value of bike plus lights only, which is what they've offered you. Based on a £400 bike only that would be £28. 
After the 30 month period the market value of the bike would fall into the 4 year old category (rounded up*) and be charged at 3 or 7%.

This document has some interesting information on it. Click here for PDF.

This says that at the end of the 12 month hire agreement the ownership transfers back to (or stays with) CycleScheme. You can either pay the market price of the bike to take ownership or extend the hire agreement for another 31 months. This will take the age of the bike up to 3 years 7 months (* which is rounded up to 4 years). 
You only have to pay a ‘Continuation Deposit’ in order to continue the use for another 31 months. No other payments are to be made during this period. 
After the 31 months you can return the bike and get your ‘Continuation Deposit’ back or pay the market price (3/7%) and also get your deposit back.

So based on your £400 bike. You pay 7% deposit (not sure where they get that 7% from) to use the bike for a further 31 months, then you pay 3% (£12) to take ownership *and also get your deposit back*.

I think I understood that document correctly, it doesn't say how much the deposit should be, but it does seem to make the whole scheme a better deal, as long as your prepared to wait the extra 31 months. Although all you really have to do is inform CycleScheme if you change address or employment.


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## TheBoyBilly (8 Nov 2010)

I'm with Greg on considering the scheme as nothing more than a 0% loan, although maybe you can come out of the deal slightly better off than that. As for me, my next bike is a Sportive machine to do charity rides and, if I can, the occasional FNRttC which look to be a hoot. I have applied for a 0% interest Credit Card and may even go for a 2010 Secteur Elite which will save me another £200 (is that the model you bought Martok?) I had dreams of Bassos, Giants, Pinerellos etc, but I will save my money for now, get into the Sportive scene proper and then decide whether I need more than the Secteur...probably not.

Bill


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## Norm (8 Nov 2010)

Martok said:


> So, my question is, can CycleScheme change what they are to offer for market value on bikes through the scheme for those already on it? Is this legal? I'd certainly have thought twice about taking out the scheme if I had known what they would offer me now (and I'm glad that i have bought my Secteur Elite not using the scheme).


Martok, read what Redjedi wrote, he's pretty much spot on. 



GregCollins said:


> The rules have changed mid scheme period for many of us. Such is the way with HMRC, it isn't down to an employer or to a scheme administrator. VAT goes up in january, income tax rates may change, blame the govt. not the employer.


As was said in another C2W thread recently, blame the person who signs a contract without knowing what they were signing. *

The rules have not changed.* 

The requirements have always been that the bike should be sold at market value or any difference between the market value and the amount paid is a taxable benefit. The requirements now are that the bike should be sold at market value (with guidelines provided) and any difference between the market value and the amount paid is a taxable benefit. Not much of a change, then. The guidelines were only provided because people were taking the piss saying a bike lost 95% of its value in 12 months.


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## GrumpyGregry (9 Nov 2010)

Norm said:


> Martok, read what Redjedi wrote, he's pretty much spot on.
> 
> As was said in another C2W thread recently, blame the person who signs a contract without knowing what they were signing. *
> 
> ...




Good call. My bads. The interpretation and guidance has changed but the rules themselves haven't. Though I'm not blaming anyone or complaining. I'm happy with the scheme as it is with its latest interpretations. My gripe, if I have one, is with those scheme members who have never, ever, used a scheme bike, or any other bicycle, for that matter, at any time to commute. Or who have bikes on the scheme with frames sized to suit a 6' 2" person when they are 5' 0" themselves. That really is a piss take par excellence. 

NB My HMRC man did make coffee come out of my nose when he casually said.... "Of course, I suppose, there is nothing to stop the revenue from using this new interpretation retrospectively and assessing your liability for tax on any bikes for which you only paid 5% on in years gone by, but that would be somewhat harsh. Perfectly within the regualtions though."


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## Norm (9 Nov 2010)

GregCollins said:


> NB My HMRC man did make coffee come out of my nose when he casually said.... "Of course, I suppose, there is nothing to stop the revenue from using this new interpretation retrospectively and assessing your liability for tax on any bikes for which you only paid 5% on in years gone by, but that would be somewhat harsh. Perfectly within the regualtions though."


I think it would make a few people take note of the exactitudes of the scheme regs. They can go back up to 7 years and, IMO, for the period before the guidance was issued, they'd be able to look at actual valuations of a 12 month old bike. 

In other words, if someone paid a grand for a, for instance, Secteur Elite and, after 12 months, gave their employers £50 for it, HMRC could look at that any time over the next 7 years and say that a 12 month old Secteur Elite is worth £750, and look to recover tax on the £700 benefit.

That would make people sit up.


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## GrumpyGregry (9 Nov 2010)

Norm said:


> I think it would make a few people take note of the exactitudes of the scheme regs. They can go back up to 7 years and, IMO, for the period before the guidance was issued, they'd be able to look at actual valuations of a 12 month old bike.
> 
> In other words, if someone paid a grand for a, for instance, Secteur Elite and, after 12 months, gave their employers £50 for it, HMRC could look at that any time over the next 7 years and say that a 12 month old Secteur Elite is worth £750, and look to recover tax on the £700 benefit.
> 
> That would make people sit up.



Indeed. Hence my coffee spurting everywhere. I'm on my third scheme bike at the moment. First one was £699, second one £1000, current one £1000. A large potential tax bill as I 'paid' only £50 each for the first two.

Though I'd argue if they did as you've suggested and go for 3/4 residual value, even if realistic they would be at odds with their own guidance and someone would be bound to appeal it.

It all begs questions though about input of your own dosh into the bike in the longer term normal wear and tear, etc.. Cyclesheme have been canny in their 'transfer the problem to us Mr Employer' by playing the H&S bugaboo over employers liability over a three year old bike though. Very cute.


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## Martok (19 Nov 2010)

After various communications with Cyclescheme, I've gone for the "Extend the use period for another 30 months for a one-off cost £51.44 (after that time they will offer the bike at market value)" option.

It turns out that this is all that I will pay. The figure of £51.44 is 7% of the value of the bike & equipment after 4 years (from the HMRC guidelines). Currently what I have paid is a continuation deposit which is refundable at the end if I didn't want to keep the bike. If I do (which I will, of course), then Cyclescheme offer me the bike for this price and therefore they keep the continuation deposit.

So, I'm fairly happy with the final cost I have paid, though as the bike isn't mine for another 30 months (it's Cyclescheme's now that my employer transferred it to them) I can't sell it until then, which is a pain. So it'll just have to sit next to my Secteur Elite gathering dust.


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## magnatom (19 Nov 2010)

I assume that if you go for the extended period of use then you can't sell the bike on?


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## DrSquirrel (19 Nov 2010)

magnatom said:


> I assume that if you go for the extended period of use then you can't sell the bike on?



It would be property of theirs still as it will be under hire.

The point is to buy it at a later date when the value truely is much lower.


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## benb (19 Nov 2010)

What would happen, hypothetically, if your scheme bike was stolen?
Obviously you'd still have to pay the lease amount, but what about at the end with the transfer of ownership?


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## 2Loose (19 Nov 2010)

benb said:


> What would happen, hypothetically, if your scheme bike was stolen?
> Obviously you'd still have to pay the lease amount, but what about at the end with the transfer of ownership?



Had this myself. Bike was stolen just after the 12th payment, before the settlement payment was made. Cyclescheme were informed and I was told 'oh thats a shame, nothing more to pay then'. Zilch, nada. 

Even though the insurance more than covered it, I'd rather still have the bike though.


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## Jezston (19 Nov 2010)

The insurance replacement is a tricky thing. My bike was stolen 6 months into my scheme, along with the lights and lock it came with. These were replaced by MY insurer, not the companies or the scheme administrator nor HRMC.

If HRMC or anyone else wants me to pay fair market value on the bike they bought me, they can f*** off - it's been nicked.


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## Jezston (19 Nov 2010)

Speaking of which, my scheme just ended. I paid my employer an administrative fee of £1 to hand it over, because that is what I agreed with them at the start of the scheme. If anyone takes issue with that, take it up with my employer. Also - I signed nothing.

If they do take it up with my employer, my employer can direct them towards the local police station for information on the bicycles wherabouts.


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