The Cycle to Work scheme was initiated by the UK Government to promote healthier journeys to work, to make healthier lifestyle choices and reduce environmental pollution. It’s already been 21 years since the cycle to work scheme was introduced - an opportunity to save cash. This scheme came into existence in 1999. It employs loan cycles and safety equipment as a tax free benefit making a claimed saving of 42% on the overall value.
This scheme does not require prior approval of HMRC. The scheme was introduced under the Government's Green Transport Plan. The Green transport Plan aims to cut congestion on the road, improve national health and have a positive impact on the environment.
Previously the maximum spend used to be £1000, however this is not the case anymore. Also, new guidelines say that e-bikes are not exempted. Each time an employee chooses to join a cycle to work scheme, employers end up reducing their own National Insurance Contributions.
On 6th August 2010, HMRC issued a statement to clarify the fair market value of the bike in case an employee wants to take ownership of it. HMRC issued a guidance stating: VAT needs to be accounted for on Salary Sacrifice payments for Cycle to Work from 1 January 2012. Under such a circumstance, employers can claim VAT but may not pass the VAT savings on the employee.
Salary sacrifice is where the employee agrees to give part of pre-tax salary in exchange for a cycle and accessory or any other benefit. It can benefit both the employer and the employee. The employer ends up paying less national insurance contribution so they save 13% on the cost of the bike.
What is the Cycle to work scheme?
The cycle to work scheme allows you to buy a bike and equipment and pay it in the next year in monthly installments. Technically this is the hiring period. After which the company can take back the bike, but if you wish to take the ownership of the bike, you can purchase at fair market value which can be 25% of the original price. The savings can be made from the tax exempt which is 42% saving depending on the tax bracket you fall in. Higher the pay, higher will be the savings.
Eligibility for Cycle To Work Scheme
Employers from the public, private and voluntary sector are eligible for tax exempt loan scheme for their employees, provided the employee should be paid through the PAYE system. Anyone over 18 years of age can apply for this scheme. You must earn at least a minimum wage after salary sacrifice has been taken from your pay.
Your employer needs to sign up for the cycle to work scheme because the employer pays for the bike and accessories and organise your monthly payments to tax efficient from your salary. This means you will be paying less tax and national insurance every month.
This scheme is not available to self-employed and employees on NMW. You are also responsible for maintaining and safety of the bike.
How does the cycle scheme work?
It’s a simple process:
- Your workplace will register with the scheme provider
- You choose the bike you want
- Your employer will pay for the bike
- You then pay your employer on monthly installments through payroll
Other benefits of cycle to work scheme:
- You live longer
- You reduce on Carbon emissions.
- You burn those extra calories
- You boost your Vitamin D production
- You end up saving money
Cycle scheme is an employee benefit that saves 25-39% on bikes and accessories. Apply today. Ask your employer for more details.