Cycle to Work Scheme Tax Considerations
Author: Kay Augustus (ACIPP) Head of LHP Payroll
The cycle to work scheme is great for our planet, your health and comes with financial benefits. Many of our payroll clients ask about the cycle to work scheme, and how it works with regards to tax and NI. The cycle to work scheme was introduced by the Department for Transport to reduce omissions and encourage people to be active.
For individuals, it means cheaper travel and better health. For businesses, it means increased productivity and increased footfall in shops. And for society as a whole it means lower congestion, better air quality, and vibrant, attractive places and communities.
How it works
The cycle to work scheme uses the salary sacrifice process by deducting the cost of a bike from the employee gross pay before tax, pension, and NI. This makes a saving to the employee of up to 32%. (20% income tax and 12% NI- based on basic rate tax) and the employer is also able to make savings on the employer’s national insurance at 13.8%. The following conditions have to be met:
- an employee must not at any point during the hire period, own the cycle
- at least 50% of the cycle’s use must be for ‘qualifying journeys’ such as commuting to and from work
- the offer must be made across the entire workforce, with no employees or groups being excluded.
Any boss can run a cycle to work scheme, however, tax and NI benefits only apply to staff treated as employees for tax purposes. So CIS/contracted staff via self-employment may not apply. Also,
- employers must not sacrifice salary to a level below National Minimum/Living Wage
- typically schemes run for 12-18 months, however hire agreements can last longer/shorter periods
- safety equipment such as high vis clothing, helmets and lights can be purchased on the scheme, and electrically-assisted pedal cycles.
Setting it up
As the employee will be entering into a hire agreement, for purchases over £1,000, the employer will need Financial Conduct Authority (FCA) authorisation. Alternatively, there are scheme providers out there that can provide a consumer hire agreement for the employee and employer.
Providers ensure the scheme is compliant with legislation, they administer the scheme, advise you on salary sacrifice arrangements and help you promote the scheme to staff. Examples companies you can use are below, but there are many others on search engines too: with varying offers on capped spend:
Employees are not allowed to put funds towards the cost of the bike, but can buy additional equipment if they wish. For further reading, find the cycle to work scheme guide at Department of Transport.
For help setting up cycle to work at your business please don’t hesitate to ask us for assistance. Once you have decided on a scheme, let us know the details and we can help process the salary sacrifice for you. Let’s Talk.