The Cycle To Work Scheme for your employees
With more and more emphasis on helping the environment, business owners are looking for ways to improve their
eco-credentials.
One way is to encourage employees with a cycle to work scheme that allows them to save on buying a new bicycle. This blog post looks at different providers and how cycle to work schemes can benefit employees’ and the planet’s health.
What is Cycle to Work?
A Cycle to Work scheme is a salary sacrifice scheme that enables an employee to purchase a new bike from pre-tax income. These schemes are aimed at encouraging employers to help more of their staff use more environmentally friendly commuting methods as well as improve the physical and mental health of their employees.
How does a cycle to work scheme operate?
A cycle to work scheme usually allows the employee to choose a bike and accessories such as a helmet, clothing, gloves, lights etc. from a designated provider using a voucher which is deducted from the employee’s gross pay, usually on a monthly salary sacrifice. Employees may work with local bike shops or online outlets depending on the nature of their operations to ensure that their staff can access the scheme. Some schemes offer in excess of 2,000 bike shops to choose from.
What providers are there for these schemes in the UK?
There are a few providers of Cycle to Work schemes that employers can implement to offer this benefit to their staff. Perhaps the best known one is by CycleScheme which operates on a UK wide basis and works a bit like a PCP scheme that you might use to buy a car. There is a balloon payment at the end of the agreement if you want to keep the equipment at the end of the payment period which is between 1-4 years.
What are the tax implications of the scheme?
If the scheme meets the relevant criteria, the employee can get tax exemptions which mean that income tax and National Insurance Contributions (NICs) are reduced. For the employer there will be a reduction in NICs and Apprenticeship Levy (where applicable) based on the amount sacrificed.
Let’s have a look at a calculation to see the possible savings:
Basic Rate Tax payer – let’s use £25,000 salary.
| GBP | |
|---|---|
| Cost of bike and equipment | £2,000 |
| Tax saving | £400 |
| NIC saving | £265 |
| Set up fee | £140 |
| Total cost of bike | £1,475 |
Higher Rate Tax payer – let’s use £55,000 salary.
| GBP | |
|---|---|
| Cost of bike and equipment | £2,000 |
| Tax saving | £800 |
| NIC saving | £65 |
| Set up fee | £140 |
| Total cost of bike | £1,275 |
So, you can see that if you were to pay for the bike over 2 years, the monthly deduction from your employee’s salary would be £2000/24 = £83.33 but the cost to them would be £61.46 as a low rate tax payer and £53.13 as a high rate taxpayer.
What are the other benefits for employees?
Employees can choose from a wide range of cycle equipment including hybrid and electric bikes, making 26-40% savings on the list price. They become fitter and feel that they are playing their part in improving their local environment as well as saving money on expensive fuel or public transport costs. Payments can be spread out to improve affordability and enable employees to get a better bike than if they were paying the cost upfront.
What support is available to get set up?
Cyclescheme offers marketing support to employers to help them communicate the benefits to employees as well as enabling businesses to improve their eco-credentials and hit sustainability goals.
If you are considering implementing a Cycle to Work scheme in your business, get in touch with David Masih, our client relationship partner. David can explain how to get started during a no-obligation chat today.
Call 03330 067 123 or email info@onthegoaccountants.co.uk.
