Cyclescheme is the UK's number one provider of tax-free bikes for the Government's Cycle to Work initiative. It's a brilliant programme where everyone wins - employees make big savings on new bikes, employers get a healthier workforce and save money too!
In 1999 under the Government's Green Transport Plan, the Finance Act introduced an annual tax exemption which, allows employers to loan cycles and any necessary safety equipment to employees as a tax-free benefit and was created to help promote a healthier journey to the work place and to help reduce overall environmental polution. The following guidelines clarify how organisations can take advantage of the exemption to implement a Cycle to Work scheme that encourages employees to cycle to work and allows employers to reap the benefits of a healthier workforce.
These notes are for guidance only and reflect the tax position at the time of writing and the law as it relates to the provision of consumer credit. The tax exemption refers to cycles and cyclists' safety equipment loaned to employees by employers. However, where salary sacrifice arrangements are used, Cycle to Work schemes must be regulated hire agreements between the employer and the employee. The terms 'hire' and 'loan' are therefore both used in these guidelines.
What's the process of getting a tax free bike for work through Cyclescheme?
- Step 1. Once an employer has entered into a contract with Cyclescheme (employers can sign up via the cycle scheme website) any employees wishing to participate need to visit a Cyclescheme Partner Shop to choose the bike and, if required, safety equipment. Supreme Cycles is a participating cycle scheme bike.
- Step 2. Employees then apply for a Cyclescheme Voucher by finding out their Cyclescheme Employer Code and entering the information provided by the bike shop online. The employee will usually sign an online Hire Agreement at this time.
- Step 3. If the employer approves their application they will countersign the Hire Agreement and pay Cyclescheme for the full retail price of the bike and equipment.
- Step 4. Cyclescheme will then issue a Voucher to either the employee or the employer, wherever is requested.
- Step 5. The Voucher is then redeemed at Supreme Cycles and exchanged for the bike package. Salary sacrifice then commences over the hire period (usually 12 months).
- Step 6. At the end of the hire period the owner of the bike may choose to offer the employee ownership of the bike for a full market value.
Please note that although the above procedure applies to the vast majority of schemes. there are some variations to the above which are a result of the way an employer’s scheme is set up, such as if they are using a finance company (see below) or a benefits provider.
Who can participate in the scheme?
There is no minimum or maximum company size necessary to sign up to the scheme. Eligible employees must: be paying PAYE, earn more than the National Minimum Wage after salary sacrifice, and have a contract that does not end during the hire period. Employees who earn close to the National Minimum Wage following salary sacrifice may wish to discuss with their employer the option of loan or pool bikes. There is no credit check for employees wishing to participate.
Under 18s can join the scheme if their guardian signs a guarantor agreement.
What is salary sacrifice and how are savings made?
Salary sacrifice occurs when an employee agrees to give up part of their salary for an agreed period (in the case of the Cycle to Work scheme this is usually 12 months) in exchange for some kind of non-cash benefit, such as the loan of a bicycle and safety equipment, As salary sacrifice is taken from the gross salary (before tax) rather than net pay it means the employee pays less income tax and National Insurance. Employers that can reclaim VAT usually pass this saving on to their employees, which increases savings further. Employers also save on Secondary Class NICs (usually around 12.8%) as the amount they’re paying in wages is also lower. See www.hmrc.gov.uk/specialist/salary_sacrifice.pdf for a more detailed explanation.
What are the savings?
Typical savings are between 40% and 50%, but the actual amount depends on the employee’s personal tax band and the way the employer runs their scheme. Higher rate taxpayers will save more, employees whose company cannot reclaim VAT (the NHS, for example) will save less. If the employer uses external finance (i.e. borrows the money to buy the bikes from an outside agent) then savings will be approximately 5% lower.
What bikes are available?
Employees can choose any bike - including electric bikes, folding bikes and other specialist cycles, - providing it can be provided by us. If the employer wants to supply bikes costing over £1000 (retail price including VAT) they will need to purchase an individual Consumer Credit Licence, so many employers limit the package value to £1000 inc. VAT. Please note that obtaining bikes for friends and family is not permitted; the bike must be for the employee.
Who actually owns the bike?
The bike and goods remain the property of the employer throughout the hire period, unless the employer uses a finance company to fund the bikes; in this case the finance company or funding bank will own the bikes.
Who is responsible for maintaining the bike and what happens if it is stolen?
It is the employee’s responsibility to maintain the bike. Supreme Cycles will be able to advise about maintenance and servicing depending on how the bike is used. If the bike is stolen the employee will be liable for any outstanding monies without any tax exemptions, so it's very important that employees insure the bikes. Safety equipment including Home Office-approved 'Sold Secure' D-locks and cable locks can be obtained as part of the scheme.
What's the best way to insure the bike?
Household policies are usually the cheapest option but employees must ensure that the insurer covers the bike when in storage away from your home, and that the bike's value doesn't exceed the upper claim limit. If the bike can't be covered on a home insurance policy, we recommend Cycleguard (www.cycleguard.co.uk) for insurance (who offer Cyclescheme customers a 10% discount).
Does the bike have to be used for commuting?
Employees should use the bike mainly for commuting to and, if relevant, between work places (at least 50% of the bike’s use should be for work purposes). However, the bike can also be used for non-work purposes and there is no need for employers to monitor individual usage or for employees to keep a mileage log. Please note that employees can not claim business mileage allowance with a bike obtained under the scheme as the bike belongs to the employer.
What happens at the end of the hire period?
At the end of the hire period employees may be given the opportunity to buy the bike for a full market value, however this cannot be an automatic entitlement. The cost of full market value cannot be stated before or during the hire period as this could be considered a benefit in kind and therefore not be eligible for tax benefits. Many employers opt for Cyclescheme to take ownership of the bikes at the end of the hire term, in which case any offer sale to the employee will come directly from Cyclescheme.
What happens if an employee leaves their job or is made redundant?
Once signed, the Hire Agreement is non-cancellable following a cooling-off period of 7 working days following collection of the goods. This means that if an employee leaves or is made redundant from their employment during the hire period they are obliged to pay the remaining salary sacrifice amount in full from net pay i.e. without any tax exemptions.
For further information please see the Department for Transport’s Cycle to Work implementation guide: