Cycle Scheme
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.
How do I benefit?
You can make massive savings on a "tax free" bike which is used mainly for commuting. Typical savings are between 40% and 50%, but the actual amount depends on the employee's personal tax band and the way the employer runs their scheme. Higher rate taxpayers will save more, employees whose company cannot reclaim VAT (the NHS, for example) will save less. If the employer uses external finance (i.e. borrows the money to buy the bikes from an outside agent) then savings will be approximately 5% lower.
How does it work?
Employees usually enter into a "salary sacrifice" agreement and rent the bike from their employer for a set period of time. Salary sacrifice occurs when an employee agrees to give up part of their salary for an agreed period (in the case of the Cycle to Work scheme this is usually 12 months) in exchange for some kind of non-cash benefit, such as the loan of a bicycle and safety equipment, As salary sacrifice is taken from the gross salary (before tax) rather than net pay it means the employee pays less income tax and National Insurance. Employers that can reclaim VAT usually pass this saving on to their employees, which increases savings further. Employers also save on Secondary Class NICs (usually around 12.8%) as the amount they're paying in wages or salaries is also lower.
Can I take part in the scheme?
There is no minimum or maximum company size necessary to sign up to the scheme. Eligible employees must: be paying PAYE, earn more than the National Minimum Wage after salary sacrifice, and have a contract that does not end during the hire period. Employees who earn close to the National Minimum Wage following salary sacrifice may wish to discuss with their employer the option of loan or pool bikes. There is no credit check for employees wishing to participate.
Under 18s can join the scheme if their guardian signs a guarantor agreement.
What sort of bike can I choose?
Employees can choose any bike - including electric bikes, folding bikes and other specialist cycles. If the employer wants to supply bikes costing over £1000 (retail price including VAT) they will need to purchase an individual Consumer Credit Licence, so many employers limit the package value to £1000 inc. VAT. Please note that obtaining bikes for friends and family is not permitted; the bike must be for the employee.
Do I own the bike?
The bike and goods 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. If you were to own the bike then the tax incentives would not apply.
If the bike is stolen the employee will be liable for any outstanding monies without any tax exemptions, so it's very important that employees insure the bikes. Safety equipment including Home Office-approved 'Sold Secure' D-locks and cable locks can be obtained as part of the scheme.
What happens at the end of the hire period?
At the end of the hire period employees may be given the opportunity to buy the bike for a fair market value, however this cannot be an automatic entitlement or again the tax incentives are lost. The fair market value cannot be stated before or during the hire period as this could be considered a benefit in kind and therefore not be eligible for tax benefits. However, HMRC has issued guidance on what it usually considers to be fair market value in the form of the table below:
| |
Acceptable disposal value percentage |
| Age of cycle |
Original price of the cycle less than £500 |
Original price £500+ |
| 1 year |
18% |
25% |
| 18 months |
16% |
21% |
| 2 years |
13% |
17% |
| 3 years |
8% |
12% |
| 4 years |
3% |
7% |
| 5 years |
Negligible |
2% |
| 6 years & over |
Negligible |
Negligible |
Valuations lower than the above table may need to be substantiated to HMRC.
Who maintains the bike?
It is the employee's responsibility to maintain the bike. We will be able to advise about maintenance and servicing depending on how the bike is used and we also offer a free first service
Do I need to use the bike for work?
Employees should use the bike mainly for commuting to and, if relevant, between work places (at least 50% of the bike's use should be for work purposes). However, the bike can also be used for non-work purposes and there is no need for employers to monitor individual usage or for employees to keep a mileage log. Please note that employees can not claim business mileage allowance with a bike obtained under the scheme as the bike belongs to the employer.
What if I leave my job?
Once signed, the Hire Agreement is non-cancellable following a cooling-off period of 7 working days following collection of the goods. This means that if an employee leaves or is made redundant from their employment during the hire period they are obliged to pay the remaining salary sacrifice amount in full from net pay i.e. without any tax exemptions.
How to find out more
Please get in touch with your employer to see whether they have a cycle scheme in place, or contact us for further information.