So what is a Cycle to Work Scheme?
Taken from the Department for Transport Website, here's a brief overview:
To promote healthier journeys to work and to reduce environmental pollution, the 1999 Finance Act introduced an annual tax exemption, which allows employers to loan cycles and cyclists' safety equipment to employees as a tax-free benefit. The exemption was one of a series of measures introduced under the Government's Green Transport Plan. The following guidelines clarify how organisations can take advantage of the exemption to implement a Cycle to Work scheme that encourages employees to cycle to work and allows employers to reap the benefits of a healthier workforce.
Cycle to Work schemes are in essence a salary sacrafice scheme, whereby the cost of the bicycle (& accessories) are take out of your wages before tax and National Insurance are applied. This allows you on average, depending on your tax rate, to save between 32% and 42% on the cost of your bicycle. (See example below)
Employers also benefit from this scheme, saving on National Insurance Contributions.
Here’s an example of how the savings work during the hire period, assuming the following:
|Monthly Gross Salary||£1,200.00||£1,200.00|
|Bike value including VAT
Gross salary sacrifice total
|MONTHLY GROSS SALARY SACRIFICE = £500 / 12 months
(this amount appears on the hire agreement)
|Monthly Gross Salary after salary sacrifice
Monthly NIC contribution (12%)
Monthly income tax contribution (20%)
|MONTHLY NET SALARY REDUCTION||£816.00 minus £787.67=||£28.33|
|MONTHLY SAVING||£41.66 minus £28.33 =||£13.33|
So, because the participants pay less income tax and NIC their NET salary reduction is less than the GROSS salary reduction, and this is how savings are achieved. In this example, the employee makes a £41.66 contribution to the employer, but it only costs them £28.33, resulting in a saving of £13.33 per month.
The bike and equipment remain the property of the employer throughout the hire period, unless the employer uses a finance company to fund the bikes; in this case the finance company or funding bank will own the bikes.
In order to preserve the tax benefits of the scheme, there can be no guarantee or obligation to transfer ownership to the employee immediately after the hire period has ended. However, employers generally choose to offer this option in addition to others, either directly or via Cyclescheme.
At the end of the hire period, Cyclescheme will contact employees to discuss the options available.
The most attractive option for employees will be to pay a small, refundable deposit (3% or 7% of the equipment value*) and continue to use the bicycle for an extended period of up to 36 months.
At the end of this period, if the employee does not wish to keep the bicycle, then Cyclescheme will refund the deposit in full. Alternatively, Cyclescheme may at its discretion, offer ownership of the bicycle to the employee at this point, and no further action or payment will be required if they wish to keep the bicycle.
* the lower figure is for an equipment value of less than £500 and the higher one for equipment value of £500 or more. These figures include VAT.