What is the Cycle to Work scheme?
The Cycle to Work scheme enables your employees to get a bike tax-free and save a minimum of 25% on its original value.
How does the scheme work?
You (the employer) purchase the bikes/accessories at full retail price, the resulting balance is then recovered from the employees' gross wages.
What is salary sacrifice?
When an employee agrees to a deduction of their salary this is called a salary sacrifice. This 'sacrifice' is made in return for a 'non-cash benefit'. In the case of the Cycle to Work scheme the benefit is a bike and some accessories. Through salary sacrifice, employees can expect to save a minimum of 25% whilst employers benefit from worthwhile National Insurance Contribution savings of up to 13.8% too.
What are the savings for the employer?
The employer pays the cost of the bike and equipment required by the employee as part of their Cycle to Work scheme. The employee repays the employer the full amount back via their gross pay saving on tax and national insurance. A basic rate tax payer could save up to 32% (20% tax and 12% National Insurance). A higher rate tax payer could save up to 42% (40% tax and 2% National Insurance). Employers will typically save up to 13.8% of the salary sacrifice amount.
Who is eligible for the Cycle to Work scheme?
All company employees qualify for the scheme providing they are UK taxpayers via the PAYE system and over 16 years of age. Earnings must always remain above the national minimum wage after the salary sacrifice has been deducted. Self employed individuals are not permitted to take part in the scheme.
Do I need approval from the HMRC?
You do not need the authorisation of HMRC to take advantage of the Cycle To Work Scheme or to operate a salary sacrifice scheme.
Can the I reclaim tax on the purchase of products?
Employers can claim back VAT on bicycles in they are used in the following ways:
- To reduce car use
- To increase staff health
- To create a green travel plan
Employers are not required to pass on the VAT savings to employees, as a result, all VAT repaid by the employee must be declared as output tax meaning there is no financial gain for either employer or employee.
Safety helmets are exempt from VAT.
Can my employees have two schemes running at the same time?
Yes, as long as the total of both do not exceed the £1,000 limit (unless your employer has a consumer credit agreement).
Who administers the scheme for my company?
The Cycle to Work scheme is administered by the provider on behalf of the employer completely free of charge. Register online at one of our chosen Cycle to Work providers:
As an employer do I need to credit check staff?
There are no credit checks required for the Cycle to Work scheme.
How do I raise awareness of the scheme for staff?
Our designated Cycle to Work providers will have a wide range of promotional materials to ensure your staff will understand the scheme and its benefits.
What if an employee leaves during the scheme?
If a staff member leaves during the hire period of their Cycle To Work agreement, any outstanding payments will be taken from their final salary from net rather than gross pay.
What happens at the end of the hire process?
Do you have an Open Framework agreement?
Cycle to Work providers do have an Open Framework Agreement for public sector organisations.