NHS cycle to work scheme

[Orangebadger]

Not sure if this is the right place to do this but my OH is wanting to apply for it. It seems to be suggested that it is buying a bike at a discount on a type of HP scheme with a payment at the end to own it. When he did the application form the total cost was more than the bike.

Anyone any experience of how this works? It’s not really making much sense to me as you may as well take a loan out and it would be cheaper as it works out £400 more expensive after 2 years of repayments!

The benefit is that the payments are taken pre tax so you end up saving money on the tax you pay, so have you worked out how much money you’ll save through that?

If he's in the NHS pension, it can also have an effect on that apparently. It's worth finding out more about it before he signs up.

With the scheme I used (there are lots) with my NHS employer they added up the cost of my bike & accessories and divided it by 24 months which I paid pre-tax (so as a higher rate tax payer I saved 40% on my bike) and then I paid a £1 at the end to buy my bike.

Was there interest included in the scheme he used?

I've just run a quote on our scheme (it's Vivup) and it still works in a similar way. A new Brompton C-line 12 speed was only going to be £41/month after tax for 18 months whereas it's actually £1599 to buy. But the amount that would come off my salary would be higher as it comes off pre-tax and NI.

I assume it's a salary sacrifice scheme so there should be a saving as you're paying out of pre-tax salary.

I bought a Brompton that way c2009 when a Civil Servant and saved a bit over 20% on retail. Twelve instalments of about £65 out of gross salary.

It got a bit more complicated while I had the bike.

Technically you lease the bike from the employer and then make a final payment to assume ownership. When C2W started the final payment was usual equal to one extra monthly payment. HMRC then cottoned on and said that the final payment needed to be actual market value of the bike. Market value of a year old Brommy isn't much less than a new one.

HMRC created a matrix for market value which became nil/nugatory after five years. The employer continued the lease at no charge during that time so the cost to me was just the instalments. I was eventually made redundant and just kept the bike.

I suspect the cost quoted assumes market value is paid at end of year two while it's still significant. He needs to check what happens if he keeps the bike until the end of year five but I suspect in practice nobody pays more that the instalments.

The key to the saving with these schemes is that the money is loaned to you and taken out of your salary pre-tax, and so the saving happens because you don't pay tax. The downside is you are slightly limited on where you can buy from so you might not be able to get the best price for the bike in the first place. I'm currently buying a bike through one of these schemes (not NHS) and it is still a significant saving on the RRP.

It's usually only worth doing if it's arranged as an interest-free loan. If they are adding interest there's unlikely to be much saving you pay less tax in order to pay the interest so effectively the government gets less money for funding schools and hospitals so that the finance sector can have more money for champagne - what's the point of that?

For a worthwhile scheme you would buy a £1000 bike with no interest and your pay reduction over the repayment period would be only £800.

Thank you! All makes more sense. We have found another scheme that his trust use which has a wider option of linked retailers so he’s going to look at that this week.

If he is a higher earners a bike for work scheme usually allows you to get a bike for less than half the retail price.

When I got mine I got an £800 bike but it only cost me about £350 because I saved:

• the vat at 20% - £135
• the tax i would otherwise have paid on the income. I was in the personal allowance clawback band so I saved over £300 quid on that.