The HMRC have confirmed that there will be a change to the popular Cycle To Work (C2W) Scheme that has allowed more than 400,000 people to get a bicycle for a good price.
Current savings are made due to the buyers company purchasing the bike and then hiring it to them. The company doesn’t have to pay VAT and this is passed on. The updates, from 1 January 2012, will mean that savings are cut as the employer has to charge VAT on the value of the salary foregone. Bike Radar have done some figures on the changes;
Currently, an employee on basic rate tax can choose a £500 bike and ‘hire’ it for 12 months for £287.50 (£34.72 a month, minus £10.76 in income tax and NI savings on the total salary). After paying the £108 final value fee (£90 + 20% VAT), they’ll have spent a total of £395.50. This represents a saving of £104.50.
From 1 January, ‘hiring’ the same bike will cost £345.12 (£34.72 + 20% VAT a month – £41.66 – minus £12.90 in income tax and NI savings). After paying the £108 final value fee, they’ll have spent a total of £453.12. This represents a saving of £46.88 – less than half the current discount.
The saving on a new bike becomes so low that it’s the sort of price saving you could make by buying a bicycle online or talking you way into a free lock or similar from the bike shop. My personal experience with the C2W Scheme is a good one but I’ve always seen it as a problem that you are generally limited to which stores you can shop at. My employer gave me the options of Evans or Halfords. Some will groan at the mention of either of those names but my experiences of Evans have always been good. With the limiting factor it makes it harder for the independent bikes shops to get new business, which is a real shame as some of them are top quality.
I can see many companies stopping the cycle to work scheme as now the saving just isn’t big enough and the work is much more. The effect this will have on cycling is going to be pretty big, I notice that every time the e-mail at work comes around about C2W scheme I get people asking me questions about cycling and some of them see that actually they don’t live that far away and they could cycle to work easily. I suspect that this will effect the increase of cyclists that we have seen since it started in 1999.