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, by using a cycle for commuting purposes.
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?
Normally, hire payments are sacrificed
from your employees' gross monthly salary, these payments are not subject
to income tax and National Insurance Contributions (NICs).
If you are VAT registered, you are able to reclaim it at your marginal VAT rate on the purchase of bicycles and related safety equipment, and pass this on as an additional saving to your employees.
At the end of the hire period, as the employer, you may choose to give employees the option to purchase the equipment. If your employee chooses to purchase your bike the cycle to work scheme provider will put in place a transfer of ownership process based on a Market Value payment set by HMRC.
The scheme operates under a group consumer credit licence, which has an upper limit of £1,000. This allows employees to obtain cycles and related cycling safety equipment up to the limit of £1,000 including VAT. 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. A higher limit can be applied if an employer has a separate company specific consumer credit licence thereby enabling employees to obtain cycles and equipment for an amount above the £1,000 limit covered by the group licence.
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 a 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 on their remaining salary.
Employers also save on Secondary Class 1 NICs (usually around 13.8%) as the amount they're paying in wages is also lower.
What are the average savings for employees?
Employees who
participate in schemes run by Alliance members, on average, save up to 40%
of the total cost of a new bike, but the actual amount depends on the employee's
personal tax band and the way the employer runs their scheme.
As an employer, you also make a National Insurance saving (typically 13.8% of the salary sacrifice amount). This amount is often used by employers as a financial incentive to run the scheme, whilst promoting a positive behavioural change in their employees.
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 a scheme provider.
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, there are no minimum or maximum
company size requirements.
To take full advantage of the tax exemption, employees must be paying PAYE. Scheme providers have alternative ways of including employees in the scheme who do not earn more than the national minimum wage after salary sacrifice, those who are under the age of 18, and employees whose contracts are shorter than 12 months.
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 employees who participate
in the scheme noticed an improvement in their health, and the 97% of businesses
surveyed thought that the scheme was an important way to encourage a healthy
workforce.
The scheme also plays a role in creating a more productive and engaged workforce. 89% of employers believe that the cycle to work scheme is an important means of improving employee engagement.
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.
