What is the Cycle to Work scheme?
The UK Government introduced the Cycle to Work Scheme in 1999 as a tax exemption initiative with the aim to promote healthier journeys to work and to reduce environmental pollution. It allows employers to loan cycles and cyclists’ safety equipment to employees as a tax-free benefit. Ownership of the bicycle will pass to you the employee at the end of the loan agreement.
How does the Cycle to Work scheme work?
There are a few different scheme providers each with their own variations but the basic idea is the same.
Our shop is currently registered to work with the Green Commute Initiative scheme provider: www.greencommuteinitiative.uk
It is a simple process:
- Your workplace registers with a scheme provider (i.e. the Green Commute Initiative)
- You choose the bike you want
- Your employer pays for it
- You pay your employer back through monthly instalments taken through payroll.
This process is known as salary sacrifice. Under Consumer Credit Law, since the employee cannot own the bike to get the tax break, this arrangement constitutes a hire agreement.
An employer issuing a hire agreement will need to be regulated and authorised by the Financial Conduct Authority (FCA). However, the FCA makes an exemption of up to £1000 for the cycle to work scheme agreements. This is why there is a limit of £1000 on most schemes. For those who want a more expensive bike the Green Commute Initiative has a business model which means the employer does not need to be authorised themselves. The Green Commute Initiative is Regulated and Authorised by the FCA.
Salary sacrifice periods are for a minimum of 12 months (but can be for longer) and your employer can advise on the spending limit.
How does the tax-free bit work?
Monthly payments for the new bike are taken from your gross salary before any income tax or national insurance is deducted and will be shown on your pay slip. This means you will pay less tax and National Insurance each month whilst you are paying off the bike.
At the end of the scheme, you will have saved between 32% and 47% of the actual cost of the bike depending on your rate of tax. And you will have spread the cost into manageable monthly payments too.
With most providers, there is an end-of-scheme payment. This is because technically you have been loaned the bike and you have to buy it at what HMRC call a fair market value. This usually works out around 7%, though the Green Commute Initiative only charges £1.
The Cycle to Work scheme is easy to access and won’t take up much administration time for your employer.
There is a financial benefit for your employer too. They end up paying less employer national insurance contributions so they save about 13% on the cost of the bike and gets a healthier, happier more productive staff member who doesn’t need a parking space.
You can use the Green Commute Initiative savings calculator to work out what savings you could make.
Ask your employer if they are already signed up. If not, suggest they register with the Green Commute Initiative.
