This afternoon the Chancellor, Jeremy Hunt, presented his Autumn Statement. The result of which will produce a much-needed income boost for over 29 million employees and…
Cycle to work schemes are a government-backed initiative that aims to encourage more people to cycle to work by making it more affordable. The scheme allows employees to purchase a bike, and any associated equipment, through their employer as part of a salary exchange scheme. The repayments are then taken before calculating tax and National Insurance (NI) contributions.
The “green” agenda and staff welfare
For an employer with a strong Environmental Social and Governance (ESG) or “green” agenda, this offering is an essential way of helping contribute towards those goals. It coincides with environmental concerns, promoting the use of bikes rather than cars, and reduces traffic congestion as well as the company’s carbon footprint.
It gives your employees a cheaper way to maintain a fit and healthy lifestyle, which could reduce staff absences. Some employees may even be able to get to work quicker than in a car, and it can also help solve any office car parking issues.
The scheme includes electrically assisted pedal cycles as well, and there is no upper limit on the value of the equipment (if the provider is a third party).
What conditions apply?
To be eligible for the tax exemption, the conditions are:
- Ownership of the equipment is not transferred to the employee during the loan period
- Employees use the equipment primarily for qualifying journeys – that is for journeys from the employee’s home to workplace, or part of that journey (e.g. to the railway station), or for journeys from one workplace to another
- The offer of the loan of cycle and safety equipment must be across the workforce with no groups excluded
What happens at the end of the loan period?
The employee may purchase the bike after the loan period in a separate agreement. HMRC’s online table will calculate the price of the equipment if, or when, the employee wishes to purchase it off the employer.
What is the advantage for the employee?
One of the main benefits of the scheme is the potential for significant tax savings. By reducing the amount of income subject to tax and NI, employees can save up to 42% on the cost of the bike and equipment, depending on their tax band.
For example, a basic rate taxpayer who purchases a bike worth £1,000 through the scheme would save £200 in income tax and £120 in NI, making a total saving of £320. Higher rate taxpayers could save even more, with a tax and NI saving of £420 for a bike costing £1,000.
What is the advantage for the employer?
From a tax and national insurance perspective the benefit is a saving of 13.8% of the gross pay foregone. In the example above the employers’ NIC saved is £138.
There are other issues to consider, such as interaction with national minimum wage legislation, a consumer credit licence, and insurance. However, we can provide further advice on these issues if required.
If you are considering setting up cycle to work scheme and would like further information, please do not hesitate to contact one of our experts. We also recommend reading our article about salary exchange schemes if you would like to look at other options.