The Cycle to Work scheme
The Cycle to Work scheme is a salary sacrifice arrangement that enables employees to hire bicycles and safety equipment from their employers (or a third party) in return for a deduction in their salary. This aims to save both employees and employers tax:
The employee saves through tax and national insurance contribution as they are ‘spending’ their income before these deductions
The employer saves on employers’ national insurance and apprenticeship levy on the amount sacrificed
Any employer of any size is eligible, but tax and NI benefits will only apply to staff treated as employees for tax purposes.
The following criteria need to be met:
The employee must not own the bike during the agreement period
At least 50% of the bicycle’s use must be for commuting to work
Hired bikes must be offered to the whole workforce with no employees being excluded
An employee must not put their own funds towards the cost of goods
The agreement must not reduce the employee’s wage to below national minimum wage
If these conditions are not met, then the goods will be considered a Benefit in Kind and the employers will be responsible for reporting the taxable benefit to HMRC.
There are many implications of the scheme and factors to consider such as Capital Allowances and VAT; however, if managed properly this is a great scheme that is a win-win for employer and employee.