The aim of the Cycle to Work scheme is to encourage your employees to cycle to and from work. It may be something that you have heard of, or even considered, if you have employees who live locally to your offices.
The Cycle to Work scheme was introduced back in 1999, under the Government’s Green Transport Plan, to promote healthier journeys to work and to reduce pollution.
In order to do this, HMRC brought in an annual tax exemption which allows employers to loan bikes and the required safety equipment, such as helmets and lights, to their employees as a tax-free benefit.
Who can use the Cycle to Work scheme?
The Cycle to Work scheme is only available to employees. So, if you are self-employed you are not eligible for the scheme.
There are no size or industry sector restrictions to using the scheme, so if you are a Director and sole employee of a Limited Company, you are still eligible as well as employees of Charities and other voluntary sectors. The only requirement is that the scheme must be offered to all employees. It cannot be a benefit offered to a single department or grade of employee.
The employees who opt into the scheme must agree to use the bikes predominantly for work related journeys, which in most of cases, will be the daily commute into work. This means that anyone who wishes to use the scheme to acquire a mountain bike for weekends, will not be eligible.
What kind of bike is included within the Cycle to Work scheme?
HMRC define the “cycle” as a bicycle, a tricycle or a cycle having four or more wheels.
Electrically assisted pedal bikes are included within the scheme but unfortunately, motorbikes and mopeds or anything else that could be considered a motor vehicle are not.
What equipment is included under the Cycle to Work scheme?
HMRC have been a little more relaxed when it comes to defining what safety equipment is included within the scheme and have left it open to the employer to apply a common-sense approach.
This does mean that you could decide to only offer your employees the basics such as cycle helmets, lights and reflective clothing. Where as another employer using the scheme could also include child safety seats, locks and puncture repair kits.
Is there a cap on the cost of the bike and equipment that falls under the Cycle to Work scheme?
There isn’t a limit to the total value of the equipment and bike that can be included within the Cycle to Work scheme.
You may be surprised to know that it is also possible to loan two bikes to one employee should you wish. This could be beneficial if an employee must catch a train to work, as they can use one bike to for the journey from home to the train station and the second from the train station to the office.
All we would add as a caution is that the Office of Fair Trading has said that their group consumer credit licence will only cover schemes up to a value of £1,000 (including VAT). So, if you wish to offer a higher amount to your employees, you will have to apply for consumer credit authorisation from the FCA. Which might be worth keeping in mind before you buy multiple electric bikes for your employees.
How can I set up a Cycle to Work scheme?
You do not need to register with HMRC to use the Cycle to Work scheme.
However, there are several commercial partners such as Evans Cycles and Halfords, who run their own Cycle to Work schemes. If you register for one of these schemes, you enable your employees to go into the selected stores and choose their own bikes and equipment. The supplier then emails you with a notification that an employee has applied for the scheme, which you can then approve and accept the related purchase invoice.
Using a third party in this way could be beneficial if you intend of using a hire agreement to purchase your employees’ bikes as these can be set up at the same time.
How do I run the Cycle to Work scheme?
There are two ways which you can set up and run the Cycle to Work scheme.
The Salary Plus agreement
The first is that you simply go out and buy some bikes and safety equipment and then loan these to your employees for their qualifying journeys into work.
Doing this means the employees’ salary is not affected. You may have heard of this being referred to as a “salary plus” agreement. The downside of this kind of arrangement is that you, as the employer, suffers the full cost of the bikes and related equipment.
The Salary Sacrifice agreement
If you would like to reclaim the cost of the bikes and equipment, you can set up a salary sacrifice scheme, so your employees reimburse the cost over an agreed period.
The employees’ repayments will be taken from their gross salary; saving them tax and national insurance but also, you’ll save on employers NI as well.
If you decide to go down the salary sacrifice route, you will need to consider the future earnings of the employee and be mindful of the national minimum wage. So, any employees who are already on the national minimum wage could not use this scheme.
Can an employee purchase their bike at the end of the loan period?
You cannot force employees to purchase their bike at the end of the loan period as this would turn the Cycle to Work scheme into a hire purchase agreement and this would result in the tax exemption being void.
You can, however, offer the bike for sale at the end of the period.
Any agreed purchase price would not full under the scheme so should the employee make the purchase through payroll, the value would come from their net salary (after tax and NI). And if you have previously claimed capital allowances on the original cost price, it is likely that you will have a balancing charge to go through your company tax return, so additional corporation tax will be payable.
Does this scheme sound interesting?
If the Cycle to Work scheme sounds like something you would like to implement within your business, pleas contact us for an informal meeting. Together we can discuss the potential tax savings for both yourself and your employees and work out what method of running the scheme would be the most beneficial for you.