Is the UK 'Cycle to Work' scheme worthwhile?
There is a cycle to work scheme my work is offering which works roughly like so:
Change some of your pre-tax salary into vouchers to use to buy a bicycle, and bicycle equipment (helmets, lights etc). This is deducted from your monthly pay as the cost of hiring the bike. At the end of the year, you can buy back the bike with a 12.5% discount off the original price if it is less than £500, or with a 25% discount1 off the original price if it's more than £500.
I can't think under what circumstances this scheme would be worthwhile following. Where I work the salary is enough that (with careful budgeting) you could afford a £500 bike in a month or two.
Have I understood the scheme correctly, and is it ever cheaper than buying the bike directly?
1. This is my mistake - please see here for clarification
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I administer the scheme for my workplace so I know quite a bit about this.
Firstly, I think you have slightly misunderstood the scheme - the final cost at the end of the year is 12.5% or 25% of the original cost, rather than a 12.5% or 25% discount off the original cost.
This means that if you are a higher rate tax payer then yes it is worth it - if you buy a bike costing £1000 you effectively save 40% of the cost of the bike initially, then pay 25% of the cost of the bike at the end of the scheme, so you have saved 15% of the cost of the bike (£150 in this example). If you are not a higher rate taxpayer I agree the advantages are more marginal, but you are still spreading the cost of the original purchase which is attractive for some people.
Secondly, depending on who your scheme provider is there may be other options at the end of the one-year hire period. Our scheme provider is Cyclescheme and here is the blurb we give to our employees about the end of the scheme:
During the first year of the scheme, the bike is technically owned by
[employer], who hire it out to you. At the end of the initial year’s
hire period the ownership of the bike then automatically transfers
from [employer] to Cyclescheme, and Cyclescheme will contact you when
the year is up to explain the options.
The default and most attractive option is:
You pay Cyclescheme a refundable deposit of 3% or 7% of the original purchase price (3% if original price was below £500, or 7% if
original price was above £500). This entitles you to keep using the
bike for a further 3 years with no further payments. At the end of
this extended use period you can either return the bike to
Cyclescheme, who will return your deposit, or you can keep the bike
and no further payment is due.
For completeness, the other options:
You return the bike to Cyclescheme, no more money is payable
You buy the bike from Cyclescheme for a Fair Market Value payment of 18% or 25% of the original purchase price (18% if original price
was below £500, or 25% if original price was above £500) so that you
own it outright from then on.
Please note that under the HMRC rules for the scheme, neither
[employer] nor Cyclescheme are allowed to guarantee the options that
are available to you at the end of the hire period. However the
options presented above are the currently available options and there
is no particular expectation of these changing.
More details about the end of scheme process are available at:
www.cyclescheme.co.uk/employers/employer-faqs#/getting-a-bike/faqs/what-happens-at-the-end-of-the-hire-period
If your employer is running their own scheme or using a provider other than Cyclescheme, the end-of-scheme details may be different of course, but the details you have given are equivalent to our "option 3" which is less attractive than the "option 1" that we use as default; you could ask whether these other options are available to you with your scheme.
You've already got a good answer on the numbers, so this approaches it from a different direction, the point of view of how to reach a decision.
In practice its worth it if you meet most of the following criteria (and may be worth it if you meet some of them):
You want a brand new bike, costing <£1000.
The scheme provider(s) offer a bike you want at a competitive price.
You are a higher rate taxpayer (greater tax benefit).
You're going to put the miles in (depreciation, plus it's not yours to sell if you don't get on with it). This in practice often means a cyclist wanting a new bike, rather than creating new cyclists.
You've got somewhere to keep it securely (check the Ts&Cs for who insures it and under what exclusions).
If you have something better to do with the money -- you're effectively borrowing the value of the bike interest-free, so any gains you can make on that value could become part of the equation -- assuming it doesn't just make you spend more. Prime example: offset mortgage.
Alternatively:
You don't have the money to just buy a bike -- if you'd be borrowing it this will be cheaper than pretty much any other way. But then a second hand bike would be more desirable.
Some scheme providers have deals like gift vouchers for free kit, improving the benefit slightly as well allowing you to spend the full £1000 limit set by HMRC on the bike itself. I think Halfords did this a few years ago, for example, they sometimes have this sort of offer on for normal buyers as well, but aren't the best place for bike fit (especially road bikes) or non-routine mechanical stuff (IME).
Even for a 40% taxpayer it's perfectly possible to look at it and walk away, especially if you can get the bike you want significantly reduced for being last year's model even though it's new, which is unlikely to happen on the scheme. Also note that you are supposed to use the bike "mainly" for work/commuting, though they admit upfront that there's no way of checking this.
In your case it seems just about worthwhile, but in the more general case, some companies operate the scheme themselves so you don't mess around with vouchers and finding shops that accept them. My company allows us to order a bike for cash from anywhere that will provide a VAT invoice (which should be everywhere).
As the company is buying the bike rather than an individual they may also pass on the VAT saving which makes things more attractive.
As Vicky's answer points out, companies aren't allowed to guarantee that they will sell you the bicycle, but if you can wait longer and trust your employer, the amount you need to pay to buy the bike drops year by year (presumably why cycle scheme only charges 3%/7% after 3 years)
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