Who can take part in the scheme?
All public, private and third sector employers can run a cycle to work scheme and all employees in an organisation can hire bicycles and safety equipment through the scheme. There are no minimum or maximum company size requirements.
To take full advantage of the tax exemption, employees must be paying PAYE. To date, it has been estimated that over 2 million people have taken advantage of the scheme, working for around 53,500 employers.
What is a salary sacrifice scheme?
A salary sacrifice scheme can be implemented when an employee agrees to sacrifice a proportion of their salary, for an agreed period, in exchange for a non-cash benefit. In the case of the Cycle to Work scheme, hire payments are sacrificed from an employees’ gross monthly salary, with employers seeing a reduction in their gross monthly salary. These payments are not subject to income tax and National Insurance Contributions (NICs).
Employers also save on Secondary Class 1 NICs (usually around 13.8%) as the amount they’re paying in wages is also lower.
What are the average savings for employees?
Employees who participate in schemes run by Alliance members, on average, save up to 42% of the total cost of a new bike, but the actual amount depends on the employee’s personal tax band and the way the employer runs their scheme.
As an employer, you also make a National Insurance saving (typically 13.8% of the salary sacrifice amount). This amount is often used by employers as a financial incentive to run the scheme, whilst promoting a positive behavioural change in their employees.
Are there rules and guidelines relating to the scheme in place?
Alliance members are committed to promoting best practice in relation to the operation of the scheme. Alliance members have agreed, and adhere to, clear guidelines in relation to the scheme.
These are set out in more detail below, but include standards intended to reduce abuse of the scheme, such as:
- The equipment available under the scheme.
- The financial value of products available under the scheme.
- The end of hire process.
- The application of necessary FCA regulations.
Is equipment available under the scheme?
In addition to selecting a bike, the scheme also allows employees to select cycling safety equipment. Equipment and accessory packages that don’t involve a bike are also available. The following safety equipment is available under the scheme:
- Cycle helmets which conform to European standard EN 1078.
- Reflective clothing.
- Bells and bulb horns.
- Lights including dynamo packs.
- Mirrors and mudguards.
- Shoes, pedals and cycle clips.
- Dress guards.
- Luggage carriers and straps.
- Locks and chains.
- Maintenance equipment – pumps, puncture repair kits, tool kits and tyre sealant.
- White front reflectors and spoke reflectors.
- Child seats.
The following equipment is not available:
- Bike forks.
- Sat Navs.
- Cycle computers.
- Go pro camera.
- Turbo trainers.
- Cycle racks for cars.
As an employer, do I need a Consumer Credit License to operate the scheme?
The Cycle to Work scheme is classified as a Consumer Hire agreement not a Consumer Credit agreement. The Financial Conduct Authority (FCA) is responsible for regulating Consumer Hire agreements, following the abolition of the Office of Fair Trading (OFT).
The FCA confirmed in March 2015 that Cycle to Work schemes are exempt (up to the value of £1,000) from the license regime so an employer will not need to be authorised for the consumer hire activity just because it runs such a scheme.
What happens at the end of the hire period?
At the end of the hire period an employer may choose to give employees the option to purchase the equipment. If an employee chooses to purchase the bike the cycle to work scheme provider will put in place a transfer of ownership process based on a Market Value payment set by HMRC.
Cycle to work scheme providers recommend a range of transfer of ownership processes. Some providers will handle the end of hire administration on behalf of the employer in conjunction with the HM Revenue and Customs Valuation Table.
The table below provides employers with clear guidance on what HMRC believe the market value of the bike and equipment should be at the time ownership is transferred to the employee. It is possible to maximise scheme savings by adopting one of a range of transfer of ownership processes which usually either extends the period of the hire term in order to reduce the acceptable disposable value, in accordance with the valuation table, or declares the market value as a benefit in kind for tax purposes, with employees then being taxed at their marginal tax rate on the fair market value stipulated by HMRC.