Find out all about The Cycle To Work Scheme and how to buy your Bicycle, and Cycle Accessories, tax free through this goverment scheme.
The Cycle To Work Scheme was introduced as part of the 1999 Finance Act with the aim of promoting healthier journeys to work and help help reduce enviromental pollution. The scheme allows employers loan cycles and cyclists safety equipment to employees as a tax free benefit.
Over the years the scheme has evolved so that the employer may 'hire' the cycle and equipment to the employee in return for a salary sacrifice i.e. a payment before tax has been deducted. In effect this allows the employee to enjoy the use of the cycle and equipment at a saving in excess of 30% on the normal equipment price.
Employers of all sizes across the public, private and voluntary sectors can implement a tax exempt loan scheme for their employees. To maximize the benefit of implementation, it is desirable that participation in a scheme should be as broad as possible. To qualify for the tax exemption, the cycles and cyclists' safety equipment loaned by the employer under the scheme must be available to employees generally with no groups of employees excluded.
In order to qualify for the scheme at least 50% of the use of the cycle and equipment must be travel to and from work although this is seldom ever checked.
Eligible equipment for a Cycling To Work Scheme includes cycles and cyclists' safety equipment and could include:-
Although their is no legal maximum to the value of the equipment that can be provided under the scheme, practically a limit of £1,000 per employee is normally imposed.
To help employees take advantage of this tax-free benefit, an employer can simply buy a cycle and cyclists’ safety equipment and loan it to an employee for qualifying journeys to work. This arrangement means that the employee's normal salary arrangements are not affected and is sometimes referred to as a ‘salary plus’ arrangement. It may be, however, that the employer wants to recover the cost of providing the cycle and safety equipment loaned to the employee. Usually this would be done through a salary sacrifice arrangement.
A salary sacrifice happens when an employee gives up the right to receive part of their cash pay due under their contract of employment. A salary sacrifice is neither a deduction from salary nor is it a charge on salary, it is where the employee agrees to accept a lower amount of salary - usually in return for the employer's agreement to provide some form of non-cash benefit (in this case the loan of cycle or cyclists' safety equipment).
At the end of the hire period of the Bike To Work Scheme, the employer may choose to give the employee the option to purchase the equipment under a separate agreement. Typically this would be offered at substantially less than the original value of the equipment, but to prevent a taxable benefit in kind arising as a result of the transfer of ownership the employee must pay the employer the full market value of the equipment.
No tax relief is available to the employee for the purchase so, where the price is recovered from salary, it must be deducted from their net salary.
Employers can pay up to 20 pence per mile tax free to employees who use their own cycles for business travel. Journeys between home and work are not business travel for this purpose.
Any employee considering joining a Cycle 2 Work scheme will need to consider whether they would prefer to use their own cycle and be able to claim up to the 20p per mile tax free for any business miles they travel, as opposed to having a cycle loaned to them by their employer.
Employees cannot claim the 20p per mile tax-free mileage allowance for business travel if they use a cycle loaned to them by their employer.