Cycle to Work Scheme : Learn everything you need to know about the Cycle to Work scheme, including eligibility, benefits for employers and employees, eligible equipment, tax implications, and how to implement the scheme. Discover how to save money on a new bike and promote a healthier, greener commute.
Summary: The Cycle to Work scheme is a UK government initiative designed to promote cycling to work by offering tax exemptions on bicycles and safety equipment. This encourages healthier commutes, reduces environmental pollution, and offers a cost-effective way for employees to acquire a new bike. Employers can loan cycles and equipment to employees as a tax-free benefit, often through salary sacrifice arrangements. The scheme covers a wide range of equipment and has no upper limit on the value of the bicycle, though specific regulations apply to higher-value purchases.
cycle to work scheme calculator
Cycle to Work Scheme Calculator
Cycle to Work Scheme: A Comprehensive Guide for Employers and Employees
What is the Cycle to Work Scheme?
The Cycle to Work scheme is a UK government tax exemption initiative introduced in the Finance Act 1999. Its primary goals are to encourage healthier commutes and reduce environmental pollution. The scheme allows employers to loan bicycles and cyclists’ safety equipment to their employees as a tax-free benefit. This initiative falls under the government’s broader Green Transport Plan. Importantly, the Cycle to Work scheme does not require prior approval from HMRC.
History and Updates to the Cycle to Work Scheme
Since its inception, the Cycle to Work scheme has seen some key updates. In 2010, HMRC clarified the fair market value for bikes at the end of the loan period. Later, in 2011, HMRC guidance clarified VAT implications for salary sacrifice payments related to the scheme. These updates have helped to refine the scheme and ensure its continued effectiveness.
Who is Eligible for the Cycle to Work Scheme?
Employers of all sizes, across the public, private, and voluntary sectors, can implement a tax-exempt loan scheme for their employees. Employees participating in the scheme must be paid through the PAYE system. Self-employed individuals and employees earning the National Minimum Wage are not eligible. Crucially, any salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage threshold.
What Equipment is Included in the Cycle to Work Scheme?
The Cycle to Work scheme covers a wide range of equipment, including:
- Cycles: This includes bicycles, tricycles, and cycles with four or more wheels (excluding motor vehicles). Electrically assisted pedal cycles are also eligible.
- Cyclists’ Safety Equipment: The legislation does not specifically define “cyclists’ safety equipment,” allowing for some flexibility. Generally, this includes items like helmets, lights, locks, high-visibility clothing, and other accessories that enhance rider safety.
What is the Value of Equipment That Can Be Supplied?
There is no limit on the total value of the equipment, including the bicycle itself. In some cases, an employee might need two cycles (e.g., one at each end of a train commute), and this is permissible under the scheme. While there’s no limit, employers typically recover the cost of the equipment from the employee through a hire agreement, often using a salary sacrifice arrangement.
Cycle to Work Scheme and Financial Regulations
Previously, the Office of Fair Trading (OFT) was involved in regulating consumer credit. However, the OFT closed in 2014, and the Financial Conduct Authority (FCA) now oversees this area. While there’s a specific exemption for Cycle to Work schemes under PERG 2.11.3 (covering orders up to £1000) and exemptions for not-for-profit bodies and potentially other employers under the ‘business test’, employers should be aware of FCA regulations. It’s crucial that Cycle to Work hire agreements do not falsely claim to be regulated under the Consumer Credit Act.
How Does the Cycle to Work Scheme Work?
The Cycle to Work scheme typically operates through a salary sacrifice arrangement. Here’s a breakdown of the process:
- Employer Purchases Equipment: The employer buys the bicycle and safety equipment.
- Loan to Employee: The employer loans the equipment to the employee.
- Salary Sacrifice: The employee agrees to a salary sacrifice, reducing their gross salary by an agreed amount each month. This amount is used to repay the employer for the cost of the bike and equipment.
- Tax Savings: Because the salary sacrifice is taken from the employee’s gross salary, they save on income tax and National Insurance contributions. The employer also saves on National Insurance contributions.
- Ownership: At the end of the loan period, the employee may have the option to purchase the bike for a fair market value or continue using the bike at no further cost.
Cycle to Work Scheme Calculator
A Cycle to Work scheme calculator can help employees estimate their potential savings. These calculators typically take into account the value of the bike and safety equipment, the employee’s tax bracket, and the length of the repayment period. By inputting these details, employees can see how much they can save on income tax and National Insurance contributions.
Halfords Cycle to Work Scheme
Halfords is a major retailer that participates in the Cycle to Work scheme. They offer a wide range of bikes and accessories, making it easy for employees to find what they need. Working with Halfords simplifies the process for both employers and employees.
Taxation and the Cycle to Work Scheme
The tax exemption applies to cycles and cyclists’ safety equipment loaned to employees, provided certain conditions are met:
- Ownership of the equipment remains with the employer during the loan period.
- The equipment is used mainly for qualifying journeys (home to work, or between workplaces).
- The scheme is available to all employees, not just directors, and not offered to directors on more favorable terms.
Implementing the Cycle to Work Scheme
Employers can implement the scheme by purchasing the equipment, reclaiming VAT (if applicable), and loaning it to employees. A salary sacrifice arrangement is the most common way to recover the costs. Several online providers offer salary sacrifice and hire agreements, simplifying the implementation process.
Cycle to Work Alliance
The Cycle to Work Alliance is a group of major scheme providers. They represent the interests of both providers and users in discussions with HMRC and other relevant bodies.
Cycle to Work Scheme in Other Countries
Similar schemes exist in other countries. For example, Ireland has a comparable program where the employee owns the bicycle from the outset, and tax relief is provided on purchases up to a certain value.
Benefits of the Cycle to Work Scheme
Benefits for Employees
- Cost Savings: Employees save on income tax and National Insurance contributions, making the purchase of a new bike more affordable.
- Healthier Commute: Cycling to work promotes physical activity and improves overall health and well-being.
- Reduced Stress: Cycling can be a less stressful way to commute compared to driving or using public transport.
- Environmental Benefits: Cycling reduces carbon emissions and contributes to a greener environment.
Benefits for Employers
- Improved Employee Morale: Offering the Cycle to Work scheme can enhance employee morale and demonstrate a commitment to employee well-being.
- Reduced Parking Costs: Encouraging cycling can reduce the demand for parking spaces.
- Corporate Social Responsibility: The scheme aligns with corporate social responsibility goals by promoting sustainable transportation.
- Healthier Workforce: A healthier workforce can lead to increased productivity and reduced absenteeism.
Choosing the Right Bike for the Cycle to Work Scheme
With so many bikes available, choosing the right one for the Cycle to Work scheme can be daunting. Here are some factors to consider:
- Commute Distance: Consider the length of your commute. A longer commute might require a more comfortable and efficient bike.
- Terrain: Think about the terrain you’ll be cycling on. Hilly routes might necessitate a bike with more gears, while flat routes might be suitable for a simpler bike.
- Bike Type: Different types of bikes cater to different needs. Road bikes are designed for speed and efficiency, while mountain bikes are better suited for off-road riding. Hybrid bikes offer a good balance for commuting.
- Budget: While there’s no limit under the scheme, it’s essential to set a budget and stick to it.
Maintaining Your Cycle to Work Bike
Proper maintenance is crucial for ensuring the longevity and safety of your bike. Regular maintenance tasks include:
- Cleaning: Keep your bike clean to prevent rust and corrosion.
- Lubrication: Regularly lubricate the chain and other moving parts.
- Tire Pressure: Check your tire pressure regularly and inflate them to the correct level.
- Brake Checks: Ensure your brakes are working effectively.
- Professional Servicing: Consider having your bike professionally serviced once a year.
Cycle to Work Scheme: Frequently Asked Questions (FAQs)
Can I use the Cycle to Work scheme more than once?
While there’s no official limit, it’s usually once per employment. Check with your employer’s policy.
What happens if I leave my job before the end of the loan period?
You’ll typically need to repay the remaining balance to your employer.
Can I include accessories in the Cycle to Work scheme?
Yes, cyclists’ safety
Disclaimer: The information provided in this article is sourced from official websites. While we strive for accuracy and timeliness, there may be instances where information requires further clarification or updates.
Should you have any questions or require further clarification, please do not hesitate to contact us through our Contact Page. Your feedback is valuable in ensuring the information we provide remains accurate and reliable.
For the most up-to-date information, we encourage you to refer to official websites and sources.
Thank you for your understanding.
