What are cycle-to-work schemes?
These are tax-free loans and can be operated under a salary sacrifice arrangement. Employers buy the bike for an employee and the amount is deducted in equal instalments from their gross salary. Staff make savings off the retail price of a new bike and safety accessories as a result of tax and national insurance savings. The savings range from at least 31.8% (for lower-rate tax payers working for a non-VAT registered employer) up to over 50% for top-rate tax payers.VAT-registered employers can share VAT savings with staff.
Where can employers get more information and advice about the schemes?
Main providers of cycle-to-work schemes include:
Cycle Scheme, Cycle Solutions, CycleSurgery, Evans Cycles, Halfords Cycle2work, Transport for London (TFL)
The health, economic and green advantages of cycle-to-work schemes continue to push the perk forward as a favourite with employers and employees, says Jennifer Paterson
With a focus on keeping staff happy and healthy, and encouraging them to do their bit for the planet, cycle-to-work schemes are a popular benefit. Introduced in the 1999 Finance Act as a provision in the Labour government’s Green transport plan, the schemes allow employers to loan bicycles and safety equipment to staff as a tax-free perk. The cost of the bike is deducted from an employee’s gross salary, which can save about 30-50% on the cost through the tax and national insurance (NI) savings on the salary sacrificed. Employers can reclaim the value-added tax (VAT) as they would in a typical business purchase.
Under the hire agreement, a bicycle is initially leased to an employee over a period of 12 to 18 months. Some providers offer websites that track the hire agreement from issue to completion. At the end of the hire period, the bicycle can be offered for sale to the employee as a transfer of ownership, but it must be done at a fair market value.
In October 2009, HM Revenue and Customs (HMRC) clarified the rules around cycle-to-work schemes, stressing employers wanting to introduce a scheme must make it available to all staff. Richard Davies, head of employee benefits at P&MM, says: “From an industry perspective, while the changes were very significant from HMRC, they were also very positive for employers and employees.”
But there are implications for under-18s or staff on the national minimum wage (NMW). Under-18s have to get a parent or guardian to sign [an agreement] for them. Staff that earn the NMW cannot participate, but those earning just above this may be able to sacrifice an amount that would not take them below NMW, says Andy Bradley, operations manager at Premier Employer Solutions.
Fair market value definition
Another development to emerge from HMRC’s guidance was a clearer definition of the term fair market value. According to James Robertson, tax-free cycle representative at CycleSurgery, HMRC was concerned employers were passing bicycles on to staff for as little as £1 or £10. “Now, at the end of the hire period, we need to actually go through a process to value a bike and ascertain a fair market value,” he says.
Scheme providers can assist with this by getting staff to fill in a questionnaire assessing the condition of their bike and grading different aspects of it.
(See also: How cycle providers are changing their offerings to accommodate the HMRC tax changes)
Earlier this year, the Department for Transport also renewed the consumer credit licence to run cycle-to-work schemes for five more years, confirming that the value of a bicycle and equipment an employee can purchase will remain at £1,000.
Despite some of the complexities of offering cycle-to-work plans, there has been marked growth in the number of schemes launched by employers. Paul Bartlett, director of cycle schemes at Grass Roots Group, says: “Participation levels seem to continue unabated, so lots of [employers] are still signing up for schemes.Take-up depends on how well it is advertised and how easy it is to cycle to work.”
Read more on voluntary benefits