Money Moments : Cycle To Work Scheme Change 2019
Last week the government sneaked out a POSITIVE change to something, for once! This blog post will be of interest to anyone who is planning on using the Cycle to Work scheme to buy a bike from June 2019, onwards.
What Was The Cycle to Work Scheme
The Cycle To Work Scheme allowed you to purchase a bicycle and pay it off via your salary, utilising some tax-relief on the monthly payments.
Up until June 2019, there was a £1000 limit on the value you could purchase via the cycle to work scheme. The Government has always allowed you to purchase a bike plus equipment (helmet, lights, water bottle, etc) but it must not exceed £1000 in cost as a total. This had a two-fold affect on the bike markets.
One – Bike manufacturers started building ‘Cycle to Work’ scheme bikes. Although not marketed as such, suddenly we started seeing loads of bikes at the £999/£1000 price point. The problem was that the CTW scheme bikes had no possibility for a price reduction. The bike shops know that the bikes were being purchased on the CTW scheme so the buyers would pay the same else-where. Also, all shops were selling the same bike for the same price. This leads on to the 2nd issue.
Two – You couldn’t pay an ‘overspend’ in cash to upgrade the bike or use the CTW scheme as part payment of a bike that cost more than £1000.
What Has Changed With The Cycle To Work Scheme
In June 2019 the Government changed the rules to allow you to choose a bike/equipment over the value of £1000.
On the Cycle to Work government website you can find more details on this in their FAQ Section;-
Q.2 Can employers hire a cycle and equipment worth more than £1,000 to employees?
Yes. Cycle to Work schemes where the total value of goods hired by the employer to the employee exceeds £1,000 are acceptable provided the requisite Financial Conduct Authority (FCA) authorisation is obtained. This is irrespective of the value of the salary sacrifice arrangement.
The FCA approval is on your company, not the actual bike. The website gives a couple of helpful diagrams to explain.
Employer Already FCA Authorised for Hire of Cycles
Employer Already FCA Authorised but not for Hire of Cycles
What Does This Mean?
Your HR team can answer the question around whether they are FCA authorised for consumer hire. The rules were updated on the 13th of June 2019 so your HR department may not yet be fully up-to-speed on these changes. It is the company’s decision to not get FCA authorisation and in this case you will be limited to the £1000 limit previously given.
How Does This Affect My Current Cycle To Work Bike?
It doesn’t affect any bicycle you already have on a scheme. This change will only affect any bike you get in the future. It is possible the government will update the rules again so make sure you check the website for any updates.
Where can you Buy a Bike on the Cycle to Work scheme?
This is down to the scheme your employer has signed up to. Check with your HR team for more information on where you can purchase your bicycle.
What Can You Buy on the Cycle to Work Scheme?
The scheme is for bicycles and cycling equipment. With the increase in purchase price this does open up a new market that wasn’t previously available – the eBike market!
It will all depend on you is running your CTW scheme but you could end up with something as cool looking as this!
What Would The Costs Be?
As you get the bike up front and you pay for it monthly out of your salary, the costs are dependant on what your tax levels are. You essentially save the tax/NIC and your employer also saves the NIC. The below table shows what you could expect to pay for a couple of example bike prices and the possible saving.
This is not the whole story though. As you are essentially ‘hiring’ the bike from your employer/CTW Scheme runner, the government expects that you aren’t the owner. The government has set out what it expects the Residual Value (RV) of the bike to be after a period of time. The current figures are as follows.
Examples of Actual Saving
So if you are a 40% tax payer buying a Two Grand bike you will ‘save’ £840 BUT if you want to own the bike after a year, you will need to pay £500 leaving just a £340 saving. This might make it look less worth-while however I can give you a real-world example that a previous employer offered me for a bike valued at £1000. At the end of the 12 month hire period, for a one-off payment of £70 they would hire me the bike for another 3 years, after which they would expect the bike value to be negligable and so would pass ownership to me, legally.
Your employer/Cycle to Work scheme may handle things slightly differently, and with the removal of the value cap you may find that £70 increases to meet the the Government’s expected RV. I would expect the CTW to offer you the bike for another 4 years once your initial 12 month hire ends and allow you to pay the £40 or even do it for 3 years and charge £140 for the additional hire period.
£140 might sound like a lot of money, but you’ve ‘saved’ £840 through the CTW scheme so you have a total of £700 in saving on a £2000 bike = 35%. A 35% discount on a brand new bike is great! Not many bike shops will offer you a discount of this size. You also pay it via your salary so it is a zero % interest loan to hire the bike for 12 months and then a single additional payment after 12 months to extend the hire period by ‘x’ years.
The Reverend’s Final Thought
Based on the figures you might dismiss the Cycle to Work scheme as it doesn’t save you much money. Even if the saving isn’t massive, it can be thought of as a zero % loan paid directly from your salary. Also, if you are planning on changing employer in the 12 months after your sign the agreement you may have to pay the outstanding balance (minus your taxes) in your final salary payment.
Remember, YMMV (your milage may vary) regarding how your employer manages the CTW scheme. It is worth checking directly with your HR team for clarity on the Residual Values and whether they have increased the value of bike/equipment you can purchase.