Need to know: Hire agreements & transfer of ownership

The Cycle to Work Scheme is an amazing tax benefit, but as with many government schemes, it appears more complicated than it needs to be!

We are here to demystify it….

The Salary sacrifice period is a simple one - it's how many months of salary you sacrifice to your employer for the value of the voucher. It's most commonly 12 months.

The Hire agreement is normally 72 months though. Let us explain why, and why it's nothing to be alarmed about!

Avoiding Benefit in Kind (BiK) charges

The tax benefits available through the Cycle to Work Scheme scheme are provided on the basis that users are hiring the equipment.

This avoids the scheme becoming a benefit in kind, which would attract a large additional tax, meaning lower savings.

The benefit in kind charge for the Scheme is known as Fair Market Value, and the valuation rates for bikes and equipment are set by HMRC.

Here is the HMRC valuation table:

Transfer of ownership & hire agreement:

When a scheme user wishes to take ownership of their bike, a transfer of ownership is made and the relevant fair market value is applied.

As you can see from the table above, the longer the bike is hired the lower the % valuation, meaning maximum savings.

When the Fair Market Value of the goods becomes negligible the government insists that employees pay a fee to transfer ownership.

At gogeta our aim is to ensure this cost is as low as possible for the user and we therefore offer a 6 year (72 month) hire with £1 transfer of ownership fee. Other schemes charge 7%, which seriously erodes your savings.

There’s nothing employees need to do, except to see out the hire term with no further charges or deposits. This offers the best benefit, with no hidden transfer of ownership fees.

Gogeta manages this entire hire process for employers to ensure all the regulatory requirements are met (we are FCA Authorised for Consumer Hire), meaning the hire agreement is between the scheme user and Gogeta.

The salary sacrifice agreement is between the employer and employee.

A hire agreement is supplied when the employee joins the scheme.

The added benefit of having the hire agreement with gogeta is that if the user leaves their employer they can continue to take advantage of the scheme, without needing to pay a transfer of ownership fee.

Scheme users always have the opportunity to buy the goods early or return them, if they wish. At any point during the hire term if a user wishes to buy the bike we apply the applicable Fair Market Value, and then transfer the ownership.

However the overwhelming majority of people choose not to take ownership early, and thus enjoy maximum savings.

Don't worry, over the hire period we don't insist on spot checks of your bike - we will leave you in peace!

So in summary, the extended hire agreement provides the best benefit for scheme users. It provides flexibility to continue to use, return or buy the equipment if preferred and peace-of-mind that in the event you leave your employer you’ll continue to take advantage of the scheme benefits.

What to know more?
Learn how the scheme works for employers and employees here

Book a short demo and Q&A chat here