Cycle To Work Scheme
Two of the banes of the modern age are pollution and obesity. Fortunately there is a scheme that addresses, albeit at a small scale, both of these issues at once. The scheme in question is the Cycle to Work Scheme. This enables employers to provide bicycles to their staff in a tax-efficient and affordable way.
Normally when a business supplies assets to its employees, it creates a taxable benefit based on their value. Introduced in the Finance Act 1999, the Cycle to Work scheme allows bicycles to be provided without creating such a benefit. The scheme covers the provision of bicycle safety equipment as well so a business knows their employees are protected on the roads. There are three ways of providing bicycles through the scheme.
PICTURE: Dave Young
Under this version of the scheme the employer simply provides a loan, possibly interest-free, for the purpose of buying a bicycle and associated safety gear. This is similar to the exemption for loans provided to buy season tickets for commuting. Such loans are treated as an advance on wages with the cost deducted from subsequent salary payments. Whilst this is apparently the simplest option, making such loans can be subject to FCA regulation depending on the terms. Legal advice should be taken before making any such loans.
Businesses can instead buy a fleet of bicycles for use by all their staff. This option can suit traders with several locations across a relatively small area or positioned somewhere with poor links to public transport. The fleet of vehicles would need to be securely stored in an area accessible to all employees and the business would be responsible for undertaking regular maintenance.
Salary Sacrifice Scheme
This is the most popular incarnation of the scheme. Instead of making loans to their employees, the business instead hires bicycles out to them. If the employer owns the bicycles they are hiring out, such arrangements may fall under FCA regulation in a similar fashion to the loan scheme. However, it is far more common for the business to arrange the hire through a retailer or specialist leasing firm instead. Such firms will usually already be subject to FCA regulation and so able to take this burden from the employer.
The hire cost is paid by the employee sacrificing a proportion of their salary before tax and National Insurance. This results in a saving for the employee as they would need higher gross income to be able to pay the same amount from their net pay. (For a £500 annual cost a basic rate taxpayer would save £80). The employer also makes a saving, as the amount sacrificed is not subject to Employer’s National Insurance either. This initial hire period must last at least 12 months.
At the end of the hire period, the employee has three options.
1. Return the bike to the scheme provider.
2. Purchase the bike outright for a reduced price dependent on age and original cost. (After 1 year this would be 18% of cost for bicycles under £500 and 25% for bicycles over £500.)
3. Pay a one-off fee to extend the hire agreement. There will be the option to buy the bike again at the end of this agreement, with the price further reduced due to its greater age.
There are eligibility criteria to qualify for the salary sacrifice scheme.
• The employee must not own the bicycle at any point during the hire period.
• At least 50% of the use of bicycle must be for work journeys, including commuting.
• The option to hire cycles must be open to all employees.
• Further guidance on the scheme can be found here tinyurl.com/CycleWork
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