The cycle to work initiative is a tax-efficient, and on the whole, salary-sacrificed employee benefit that provides a way of encouraging more adults to take up cycling and realise the benefits from this behavioural change.
Introduced in the 1999 Finance Act, the scheme encourages employers to loan bicycles and cycling safety equipment to employees as a tax-exempt benefit for the purpose of cycling to work. Under the scheme, employers buy or lease cycling equipment from suppliers approved by their scheme administrator, and hire it to their employees. At the end of the loan period, the employer may choose to give the employee the option to purchase the equipment.
How does it work?
You will see a reduction in your gross
monthly salary, these hire payments are not subject to National Insurance
Contributions (NICs) and income tax.
Most employers are able to claim VAT back on the purchase of the equipment and, more often than not, your employer passes this saving on to you as a member of staff.
At the end of the hire period, your employer may choose to give the employee the option to purchase the equipment. If and when you choose to purchase your bike you pay a Market Value payment.
The hire agreement from an employer is covered under the group consumer credit licence, which has an upper limit of £1,000. The Office of Fair Trading has agreed to adjust the consumer credit licence limit of £1,000 per person in the event someone has a specific need such as a disability.
What is a salary sacrifice?
A salary sacrifice scheme can
be implemented when an employee agrees to sacrifice a proportion of their
salary, for an agreed period, in exchange for a non-cash benefit. As salary
sacrifice is a reduction in an employee's gross salary (before income tax
and NICs) rather than net pay it means the employee pays less income tax
and NICs.
What are the average savings?
Employees who participate
in schemes run by Alliance members, on average, save up to 40% of the
total cost of a new bike. Please see below for
an example of the possible savings.
Your annual salary (before tax): £25,000
Cost of bike: £250
Cost of helmet: £60
Cost of accessories: £70
VAT: Included
Retail costs
Normal retail cost of your equipment: £380
Total cost excluding
VAT before savings: £326.67
Monthly salary sacrifice (1): £27.22
Savings via the cycle to work scheme
Income
tax: £65.33
National insurance: £39.20
Total Savings: £157.86
% savings via the cycle to work scheme: 41.5%
Total cost of your purchase
Total cost after
saving: £222.14
Effective monthly cost (2): £18.51
What happens at the end of the hire period?
At the end of
the hire agreement the employer can choose to transfer ownership of the bike
and equipment to the employee or scheme provider.
Each provider of the cycle to work scheme has created an individual system of using HM Revenue and Customs' Valuation Table. The table below provides employers with clear guidance on how to calculate the correct value of the bike and equipment (including VAT) at the time ownership is transferred to the employee.
Who can take part?
All public, private and third sector
employers can run a cycle to work scheme and all employees in an organisation
can hire bicycles and safety equipment through the scheme.
To date, it has been estimated that over 400,000 people have taken advantage of the scheme, working for around 15,000 employers.
What are the health and environmental benefits?
In a recent
survey, the Cycle to Work Alliance discovered that 87% of participants of
the scheme notice an improvement in their health, and the 84% rated the scheme
as an important and easy way to keep fit.
The Cycle to Work Alliance has calculated that current users of the scheme save 133,422 tonnes of CO 2 every year. This is the equivalent of the total annual CO 2 emissions of 24,000 homes or a city larger than Hereford or 76 full Boeing 747s flying around the world - more than the combined fleet of British Airways and Virgin Atlantic's Boeing 747s.
