The Cycle to Work Scheme has just got better

The cycle to work scheme has been around for many years. The scheme has some good tax savings and can be setup by an employer creating savings for both parties.

Until recently, there was a maximum amount allowed under the scheme of £1,000 but this can now be removed. Provided the employer uses a third party who is FCA authorised for the purposes of creating a hire agreement with the employee, then there is now no upper limit allowing access to E-bikes!

How does it Work?

1. The employer should register with a cycle to work scheme such as with cyclescheme.co.uk and my comments relate to this scheme in particular but there are others available.
2. The employee decides on the bike they would like and applicable accessories. This can include safety equipment such as a cycle helmet, lights and replacement parts etc. (A GPS cycle computer cannot be purchased under the scheme).
3. The employer approves the request and pays for the equipment directly to the scheme provider.
4. The employee receives the bike and related equipment. They then commence a payment for the bike via a salary sacrifice arrangement where deductions are made from their gross salary. This means the employee saves PAYE and Employees National Insurance and the employer saves Employers National Insurance.
5. At the end of the year the employee can pay a refundable deposit of 3% where the original package was less than £500 or 7% where it was more than £500. They then enter into an agreement for a further 36 months but make no additional payments.
6. At the end of the term the employee can either send back the bike to the scheme provider and have the deposit returned or keep the bike. Where the bike is kept no further payment is required and the hire agreement ends.

There are clearly advantages as a basic rate tax payer will save 32% tax and national insurance and a higher rate tax payer 42% while the employer saves 13.8% national insurance.

So what’s the catch?

The primary purpose for having a bike under the cycle to work scheme is to cycle to work. As long as this is the case then the bike can also be used personally.

There are clearly health advantages for encouraging employees to have an active lifestyle. Removal of the spending limit and allowing E-bikes will certainly help the government achieve its target to double cycling activity by 2025 although this does seem ambitious.

A salary sacrifice arrangement should be considered carefully and the employee’s wages must not fall below the national minimum wage. The employee should also be clear of the changes being made to their wages for the duration of the salary sacrifice as it can affect some state benefits as well as pension contributions.