Have you ever wondered what the cycle to work scheme is? Do you have friends or family who are taking their bike all or part of the way to work and saving tax in the process?
The cycle-to-work scheme is used by over a million employees across the UK. It saves them money and enables them to spread the cost of their bike.
It can feel clunky and complicated and that puts a lot of people off looking into it further. But it needn’t be complex. A cycle-to-work scheme is worth a look.
What is a cycle-to-work scheme?
The scheme is an example of a salary sacrifice scheme. It was introduced by the Government as part of their Green Transport Plan. A plan aimed to reduce the impact of travel on the environment.
The scheme, introduced in 1999, encourages employees to reconsider transportation through tax incentives. It also encourages employers to offer this scheme to their employees due to the tax incentives.
If you are an employer you know that offering a wide and varied range of benefits package helps with attracting the right staff. A competitive package will also help you with retaining your good staff. A cycle-to-work scheme can be one such benefit you can offer. Not only will it save you tax but it will bag you some brownie points with the team. Don’t forget it will also deliver some health benefits.
What are the tax incentives of the cycle-to-work scheme
As a salary sacrifice scheme, the employee will agree to reduce their salary which is equal to the instalment for the bike. The instalment is the cost of the bike spread over twelve months. As the salary is reduced so will the tax and national insurance.
This also means saving on the employer’s national insurance as this will be based on the reduced salary after the deduction for the cycle.
Employers will also be entitled to capital allowances on the purchase of the bicycle.
Who can apply for the scheme
To qualify for a cycle-to-work scheme you must first and foremost (as indicated in the title) cycle to work.
If you have no intention of cycling part or all of the way to work then you cannot qualify. As a rule, the Department of Transport suggests that at least 50% of the journey of the bike journey must be for work.
You must also:
- Be over 16 years of age
- Getting paid at least the minimum wage
- You must be paid wages under Pay As You Earn (PAYE)
How does a cycle-to-work scheme work?
- To join the cycle-to-work scheme the employer must register to join the scheme. It takes about 5-10 minutes to complete the registration.
- Once the scheme is registered the employer needs to give details of the scheme to employees wishing to join. We’d recommend that you publicise it internally to all your employees.
- The scheme must be open to all employees regardless of the hours they work.
- The employer needs to be able to pay for the bike and sign the agreement too. You will then recoup the money via salary sacrifice deductions from the employee over twelve months.
- The interested employees can visit participating retailers and choose what bike and accessories they would prefer.
- The employee signs up the paperwork and gets the bike.
- When the employee gets the bike it is important they get in the saddle and ride to work.
There is no government limit on bike and accessory spending, but employers can set limits.
The bike ownership scheme ends after 12 or sometimes 18 months. At that point, the retailer will get in touch with the employee with their options
Employees can keep the bike by paying a small fee, without any tax implications. There is always the option to give the bike back.
Please note that if you decide to leave your employer, you will be required to either pay off the remaining balance or return the bike.
Cycling has numerous benefits, including improved physical and mental fitness. Additionally, utilising this scheme allows for tax savings.
If you need any help with setting up a cycle-to-work scheme, get in touch with us. You can email your normal manager or if you are not yet working with us then why not look at how we work