Although it has been running for a number of years, the Cycle To Work scheme still confuses Employers and Employees alike.
What does the scheme do?
An attempt to encourage greener transport to and from work, the Cycle to Work Scheme was introduced by the government to encourage the use of a bicycle as a transportation.
How does it work?
The scheme works where the Employer purchases the bicycle and the employee gets the use of the bicycle by sacrificing salary to the equivalent value over an initial 12 months.
The maximum cost of the bike is £1000 on the scheme, and can be used for road or mountain bikes, and qualifying accessories – helmets, lights etc.
It is worth noting that if your employer is VAT registered, they can claim the VAT back on the purchase, and the repayments the employee makes are then for the net amount (so for a £600 bike, that would be £500 net - £41.67 a month).
What happens at the end of the 12 months of rental/salary sacrifice?
At the end of the initial 12 month rental, the scheme administrator usually provides the employee with a choice – to extend the rental period, for which there would be a peppercorn (or even a nil) rental amount, or otherwise the employee can buy the bike at the fixed market value rate that HM Revenue and Customs provides. This is a sliding scale – the longer you rent the bike, the less the deemed “market value is”. The full table of rates can be seen here and runs from 25% for bikes over £500 purchased by the employee at 12 months through to a negligible value (i.e. nil) for a bike under £500 original cost and held for 5 years. As an example, a bike that cost £500 and was held for 3 years, would have an 8% value and would therefore cost the employee £40 to purchase outright at the end of the third year of the scheme.
How much can you save?
Despite HM Revenue and Customs increasing the rates of “market value” on the scheme, there are still significant savings to be made for the employee. Why not have a browse for some bikes online and then input the cost of the bike onto a calculator, for example: http://www.cyclescheme.co.uk/calculator
For a £600 bike, a basic rate tax payer would save £120 income tax and £72 employee National Insurance. That means the bike for the 12 months, would cost £408 – a saving of 32%.
This calculation does not consider the cost at the end of the 12 months, but the most expensive option would be to purchase at market value from the employer at this stage – which would cost 18% of the original costs £600 x 18% = £108. This would still mean a cost of the bike of £516, a saving of £84 or 14%. The saving would be greater if the hire period was longer as the market value was longer.
How do you start a scheme?
It’s pretty simple. If you are employed – ask your employer to sign up using one of the many scheme administrators, or ask your nearest bicycle shop – most now offer the scheme. The UK’s biggest scheme administrator is http://www.cyclescheme.co.uk/ and other popular scheme administrators include On Your Bike: http://www.bicyclebenefits.co.uk/employee_zone/welcome.php .
If you require further advice please contact Easterbrook Eaton on 01395 516658 or email@example.com .
Please note this article has been produced for guidance only and you should speak to Easterbrook Eaton or a scheme administrator before proceeding with setting up a scheme.