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The Benefits of the Cycle to Work Scheme

By: Garry Crystal - Updated: 5 Mar 2010 | comments*Discuss
Cycle To Work Bicycles Bikes Employees

The government’s cycle to work scheme enables employees to buy bikes at a discounted cost. This scheme is available to all UK companies no matter what size they are.

What is the Cycle to Work Scheme?

The cycle to work scheme is fairly simple. Employees can hire bikes through the scheme and the fees will be taken from their untaxed income. In effect the employer is buying the bicycle and hiring it to the employee. The hire period is usually one year and hire fees are automatically deducted from salary payments. At the end of the year the employee will pay a small fee and the bike is theirs to keep.

Cost Effective Benefits of the Cycle to Work Scheme

Tax and National Insurance isn’t chargeable on the bike purchase. Savings are usually somewhere between 40% and 50% depending on the tax band of the employee, and employers can also pass on the VAT that is reclaimed. Employees who are on a higher tax rate will save more money on the purchase. These savings are made because the scheme is run through a ‘salary sacrifice’ taken from the gross salary rather than net salary. Gross salary is wages before tax is taken of, meaning employees save more on tax and National Insurance.

Non Financial Benefits of the Cycle Scheme

At present there are around 120,000 employees who use their bikes to get to and from work. Employee’s who ditch the car in favour of the bike are benefiting the planet in eco friendly terms by cutting down on air pollution. Cycling is also an excellent way of getting fit and staying in shape. After the one year hire period is over the discounted bicycle is the employee’s to keep or sell.

Types of Bicycle That Can Be Purchased

There is no restriction whatsoever on the type or price of bicycle that can be purchased under the scheme rules. Mountain bikes, folding bikes, even electric bikes can all be purchased. The bike and the accessories will usually be required to be purchased all at once. The employee will be given a voucher to take to one of the certified cycle shops that are taking part in the scheme. Any purchases that are over £1000 will usually mean the employer will need a Consumer Credit Licence.

Eligibility Requirement For the Cycle to Work Scheme

There are few requirements that must be met before employees are eligible. These will include:

  • Employees must be paying Pay As You Earn (PAYE)
  • Employees must be earning over the national minimum wage after the salary sacrifice has been deducted
  • The employee’s work contract must last longer than the hire period
  • Employees should be over 18
  • If employees are under 18 then a guarantor will be required
  • Poor credit records do not matter as the scheme does not involve credit checks
  • Employers must agree and can sign up to the cycle scheme via authorised websites

Downsides to the Cycle to Work Scheme

Any employer can take part in this scheme no matter what size of business they run. Unfortunately, many employers are under the impression that the scheme will involve a lot of extra time and effort. Employees may have to spend some time educating reluctant employers on the benefits of the scheme. If an employee leaves a job or is made redundant before the hire period is over then they will have to pay the remaining amount in full. This amount will be net not gross deductible; meaning without tax exemptions.

Other Rules of the Cycle to Work Scheme

There are a few extra rules that are applicable to the scheme. At least 50% of the bicycle use should be for commuting to and from work. Employees will not be able to claim any business mileage allowances for the cycle. Insurance and maintenance costs for the bicycles are also up to the employee.

Although the cycle to work scheme won’t be everyone’s idea of the ideal transportation method it can be an excellent employee benefit. The bike doesn’t have to be used every day and simply cycling to a train station counts as part of the work commute. Employees who were already considering buying a bicycle for the daily commute should look into this worthwhile scheme.

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