Cycle Schemes are a brilliant initiative from the British Government. It helps to promote healthier living (for you and the environment) by helping you to purchase a bike, spreading the payments over several months and not paying tax or national insurance on it.
Use of different schemes is becoming more and more common, so here is a little bit of information that should help you through the bike buying process if using the scheme.
This sounds so good there must be a catch. Well, potentially there is, as someone has to pay for all this saving loveliness….
The Basics From Your Point Of View
Essentially, your employer buys a bike of your choice and “hires” it to you. You pay your employer back in monthly instalments until the bike is paid for, at which point it becomes yours (there may be a fee at the end of the period to actually transfer the ownership to you).
Your employer automatically deducts the payments for the bike each month, from your pay, before they calculate tax and national insurance contributions. This means you don’t pay tax or National Insurance on the bike, so it is tax free! This at the time of writing, which would mean a saving of 32% if you earn below £50,271, or a saving of 42% if you earn over that.
So, as an example, if you are in the lower tax bracket, a £2,000 bike will end up costing you just £1,360, which is a saving of £640.
The Basics From Your Employers Point Of View
A company can administer this paperwork themselves, but very often they get a scheme provider to do it for them. The most common providers are CycleScheme.co.uk, Green Commute Initiative, Bike 2 Work, Halfords, Cycle Solutions, plus several others. Green Commute Initiative work in a slightly different way, but essentially with all of these, the company pays the scheme provider for the bike, and the scheme will issue a certificate to the employee, which they can then exchange with the store for a bike and other bits and pieces. The employer then reclaims the cost of the bike from the employee over a set number of months.
Each provider will provide far more detail about getting set up and how they work, as well as extolling the virtues of their own scheme. What you won’t find anywhere else is the information below about how this can actually affect you!
Your first step should always be contacting the relevant person at your company and asking them if they run a cycle to work scheme. If they don’t, then ask them to look into setting one up (I’d encourage them to use Green Commute Initiative – but more on that later). If they do, you need to know who they use to provide the scheme, a time frame as to how long the process should take, and do you need to provide them with a quote for the bike.
Now contact your local bike shop. DON’T APPLY FOR THE SCHEME WITHOUT CONTACTING THE SHOP FIRST! This is vital for a number of reasons:
- If the bike you want is in short supply, you need to ask your shop to reserve it for you. It would be a real pain if you went through all the paperwork to then find that the bike you wanted was no longer available.
- You need to make sure that the shop accepts the cycle to work scheme that you are using. It is up to individual stores to decide if they want to accept cycle to work certificates or not. Most do, but many don’t.
- You need to ensure that the store are actually WILLING to sell you the bike of your choice using a cycle to work scheme and at what cost.
And this “at what cost” is the cause of irritation, confusion and frustration for many consumers and retailers at the moment.
- Every cycle to work scheme provider charges a fee to the bike shop. This can be as much as 15% of the total value.
- Some scheme providers have a really good back office system which makes it easy for bike shops to work with. Some don’t, which makes them quite hard to deal with.
- Some scheme providers pay the bike shop within 1 or 2 days of the bike being handed over. Some take a long time and often need to be chased.
It is these points that are not often talked about, but that can cause shops to be less than thrilled when a customer wants to use a cycle to work scheme to buy their bike.
Some shops deal with this in different ways. Some simply refuse to work with some or all cycle scheme providers. Some work with them but inflate the cost of the bike to cover the cost of the scheme. Some will only allow schemes to be used to purchase bikes at full RRP, meaning you cannot use the scheme to buy a bike which is on sale.
We made to decision to accept all certificates, even the worst ones. We will even accept the certificates on sale bikes. However, to be able to do this, we increase the price of the bike so that the amount we get paid is the same as the sale price. That way we still get paid the amount we are willing to let the bike go for, and you still get the bike you are after.
This is why you need to know which scheme provider you will be using as that could affect the final cost of the bike. If you have a choice, then Green Commute Initiative and Cyclescheme.co.uk are the two easiest to work with, and least greedy providers.
Taking the £2000 bike example from before, if that was increased to consider the worst (from the shops point of view) cycle to work scheme, then it would go up from £2,000 to £2,352.95. You would still make a saving of £400 (instead of £640) and end up paying £1,600 (instead of £1,360) for the £2,000 bike, so it still works in your favour.
There are other things that will need to be considered, such as the limit of the scheme, how many months you have to pay it back, how the deductions affect your take home pay – you can’t go below the minimum wage, but all these types of questions get answered and sorted out when you initially start the conversation with your employer / scheme provider.
The scheme is brilliant. It helps loads of people buy bikes and save money. It usually is pretty straightforward to sort out, so the paperwork isn’t too daunting. Just bare the above points in mind when choosing the bike you want and then there will be no hidden, unpleasant surprises to take the shine off your new bike day.