A practical look at the Cycle to Work scheme for employers

The Cycle to Work scheme continues to attract interest from employees and employers alike given the tax advantages available.

Below is an overview for a business considering running a scheme or reviewing their existing arrangements.

How it works

The scheme allows an employer to provide a bike and bike safety equipment to staff tax efficiently. This is done through a salary sacrifice scheme, the employee saves tax because instead of paying the bike hire costs out of their income after tax they instead give up a portion of their pre-tax income for use of the bike. In addition, the employer saves money as less employers National Insurance Contributions (NIC) is due for payment, as the assessable salary of their staff has decreased.

It is worth noting, the scheme covers electric bikes as well as push bikes.

What is the potential saving?

The savings due to the employee is based on the tax and NIC on the salary that has been given up and the amount paid for the bike hire.

For example, if a basic rate taxpayer has a hire price of £1,200 set across three different tax years and they give up £400 of salary each year, the tax & NIC saving amounts to £112 per each year (20% tax and 8% NIC).

If instead, the employee in the above example was a higher rate taxpayer, the saving would be £168 per year (40% tax and 2% NIC).

The employer saves NIC in each of the above examples of £60 a tax year (£400 x 15%).

Bikes can be provided in different ways

• The bike and equipment can be loaned to the employee.
• A voucher can be provided so that the employee can hire the bike and equipment.
• Pool cycles can be made available for the general use of employees.

At the end of the hire period, employees can either continue hiring, return the bike, or buy it at a fair-market-value payment based on HMRC guidance.

Conditions that must be met

To be compliant with the rules:

• The employee must not own the bike during the hire period.
• The bike must be used mainly (>50%) for commuting or work-related travel. HMRC will not expect a detailed log to be maintained of all journeys but will look for clear examples where this condition is clearly not being met.
• The scheme must be available to the whole workforce. It cannot be open to just specific individuals or groups of staff.

Practical considerations for employers

Most employers work with a third-party provider to manage the administration work, although there is no reason it cannot be run in-house. Either way, an agreement will need to be in place between the provider of the bike and the employee.

There is no cap in connection with the value of the bike and safety equipment that can be provided under this scheme. However, an employer will need to ensure that the salary sacrificed by a staff member does not reduce their wage below the minimum wage threshold.

In conclusion

The above is just an overview of this scheme which can prove to be a popular incentive for employees. If you wish to know any further information on this scheme and how it may be implemented, please do let us know.