The concept behind these schemes is that an employer buys a bicycle for an employee to ride to and from work and the employee pays a hire cost through salary exchange.
The benefits for the employee are:
- There is no initial cost to buy a bicycle.
- No requirements for personal credit checks or similar.
- There is no longer an upper limit on the cost of the bicycle, so an employee can receive the type of bicycle they want (assuming the employer agrees).
- Electric bicycles, cargo and adaptive bicycles are now included in the scheme.
- Components and accessories (including helmets and clothing) are also included.
- It is not compulsory to ride the bicycle to work every day.
- The monthly hire fees are deducted from gross pay, hence there is no Income Tax to pay on these.
- No National Insurance is payable on hire fees for the same reason.
- At the end of the hire period, employees can be given the option to purchase the bicycle at an agreed price from their employer.
As the key purpose of these schemes is to promote journeys to and from work, rather than cycling in general, the employer technically remains the owner of the bicycle once the hire period finishes. Agreements typically last for four or five years.
In broad terms, a basic rate taxpayer will save 25% - 32% of the purchase price and a higher rate taxpayer 35% - 42%, depending on a number of factors.
Employees are responsible for insuring the bicycle. It is important to understand that, if the bicycle is stolen, the employee remains responsible for the monthly hire payments and must compensate the employer for the loss of the bicycle.
At the end of the agreement, an employee can:
- Start a new agreement.
- Hand the bicycle back to their employer.
- Purchase the bicycle – thus ending the agreement*.
*Under current HMRC rules, an employee must make a one-off payment to the scheme provider. The value of this will depend on how long an employee has had the bicycle and its initial value. HMRC has a number of calculators to support this.
If an employee leaves service while the agreement is still in force, they will need to pay off the balance and usually the depreciated value of the bicycle.
Get in touch
For more information on Cycle to Work schemes, or any other employee benefit, give me a call on 01483 205890.