It's been almost twenty years since the Cycle to Work scheme was introduced - but the process still represents an opportunity to save cash
It’s been almost twenty years since the Cycle to Work scheme was introduced in 1999 – the aim being to encourage people to make healthier and more environmentally friendly lifestyle choices.
The scheme allows employees to spend up to £1000 on bikes and equipment, tax-free, making a claimed saving of up to 42 per cent on the overall value.
You can use the bike and equipment to cycle to work, and in leisure time. No one is ever going to check how often you’re riding to work – but you can’t buy items clearly not used for this purpose – such as full-face helmets. There’s nothing stopping you buying a time trial bike or new road race bike though.
In 2010, changes were made to the ‘fair market value’, which could have rendered the scheme less than useful. However, it is still widely used and, according to national cycling charity Cycling UK, very worth it.
Sam Jones, head of Communications at Cycling UK told us: “We’re absolutely pro the Cycle to Work scheme – you make a saving, it helps people spread the cost out over time, and it helps employers and employees think about cycling.
“My gut feeling is that it has helped people think about riding to work. Recent UK stats show that in the years between 2006 and 2016, whilst there’s less trips being made, there’s been an increase in distance. The type of riding that’s increased is leisure and commuting. Is that down to the Cycle to Work scheme? I doubt it.
“But it’s probably had some sort of impact. Particularly in cities where they’ve actively been trying to promote cycling, like Cambridge or London, Bristol. Where people can see this as getting themselves a decent bike that they can use to commute, and for leisure,” he added.
Here’s the ‘what is it’, ‘what if I leave’, ‘how do I enrol’ and ‘why should I’ of the Cycle to Work scheme…
What is the cycle to work scheme?
The Cycle to Work scheme lets you spend up to £1000 on a bike and equipment – paying it off over the next year in monthly instalments.
In theory, this is the ‘hire period’. After this, your company is technically allowed to take the bike back, or you can purchase it for ‘fair market value’ – which can be up to 25 per cent of the original value. In practice, few employers ever enforce this and most people just keep the bike at the end and make no final payment.
The saving is created by the fact that the payments are except from tax – hence the ‘up to 42 per cent’ saving. Of course, how much you save depends upon the tax bracket you sit in.
Regardless how much cash you save, you’re always going to be getting an interest free loan – which is a plus for anyone.
Can anyone get a bike on the Cycle to Work scheme?
To get a bike on the scheme, your employer needs to sign up to a provider – such as the Cycle Scheme or Evans Cycles’ Ride2Work scheme.
If you’re self-employed, you can make use of the scheme if you’re set up in a way which means you’re technically employed by your own limited company. Alternatively, you can buy the bike and claim the VAT back via the business.
The scheme is only available for those over 18-years-old, and you can’t make use of it if doig so would make your gross pay drop below the minimum wage.
Cycle to Work scheme savings calculator
|Monthly salary sacrifice||£83.33|
|Savings per month||£26.66|
|Savings per year||£320|
|Total payment towards £1,000 bike||£680|
Looking at a singular example, if you’re a standard rate tax payer, and you take out £1000 worth of equipment, your monthly salary sacrifice (payment) will be £83.33. Your savings vary depending upon your tax bracket.
If your gross salary each month was £2,000 you would normally pay £640 in combined Income Tax (20 per cent) and NIC (12 per cent).
However, with the £83.33 salary sacrifice taken into account your monthly tax/NIC burden is only £613.34. That means each month you save £26.66.
Over the year you’ll save around £320 (or 32 per cent of £1,000 — it’s obvious enough, that’s your combined Income Tax and NIC rate) and pay only £680 towards your £1,000 cycling equipment.
And that works across the board — if your total Cycle to Work outlay is £800 you will save 32 per cent on that, so you’ll only pay £544 over the year.
What happens at the end of the loan term?
So far our calculations haven’t factored in the end-of-term ‘Fair Market Value’ if you want to buy the bike outright — throughout the ‘hire’ term of the Cycle to Work deal your employers own your bike and any kit you bought.
Here’s a table explaining what the tax folk at HMRC require you pay if you want to take ownership:
|Age of equipment||Original price <£500||Original price >£500|
|12 months||18 per cent||25 per cent|
|18 months||16 per cent||21 per cent|
|2 years||13 per cent||17 per cent|
|3 years||8 per cent||12 per cent|
|4 years||3 per cent||7 per cent|
So if we go back to our £1,000 bike, even in the least financially efficient scenario where you buy the bike straight after the 12-month loan period, it would cost you £680 of salary sacrifice and then £250 final market price, giving you a total of £930, saving you at absolute minimum seven per cent.
In practice, few employers actually enforce this and more often than not the new owner will keep the bike with no additional payments.
Scheme providers have also come up with way of reducing the final payment, by allowing the employee to continue to lease the bike, to a point where the payment is negligible.
The Cycle Scheme, for example, lets you pay a small refundable deposit to keep the bike for a further three years, after which it becomes yours for no extra cost (and during which you can change jobs and enrol in a new scheme).
The Ride 2 Work scheme, offered by Evans Cycles, provides a similar service – it recommends you use its Tranfer4You scheme where you’ll stay in the scheme for a further 48 or 60 months, free of charge. After this, the bike belongs to you. You can instead opt to take ownership immediately, but you’ll then need to pay the Fair Market Value rate.
Who are Cycle to Work providers and which retailers accept which vouchers?
There are a number of different Cycle to Work providers. It’s up to your employer which one they enrol in, and that will impact your choice of bike shop and thus brand.
Here’s a look at which retailers use which schemes:
- Evans Cycles – Ride to Work (Evans Cycles own brand), CyclesScheme, Bike2Work Scheme, CyclePlus, Vivup
- Halfords Cycles/Cycle Republic – Cycle2Work (Halford’s own brand).
- Cycle Surgery – Cycle to Work, Bikes for Staff, CyclePlus, Cycle Solutions, EnjoyBenefits, Bikes2Work Scheme, SalaryExchange and Cycle2Work (Halford’s own brand).
- Wiggle – Wiggle Cycle to Work, CycleScheme, Bike2WorkScheme, CyclePlus and Gemelli
- Chain Reaction Cycles – CycleScheme and Chain Reaction Cycle’s Ride 2 Work.
I want to enrol in the Cycle to Work scheme – what should I do first?
Cycle to Work scheme practices vary. But the most common process looks like this:
- Find out what scheme your employer is enrolled in, therefore where you can buy your bike from, and do some window shopping
- Speak to your HR department and request a certificate
- Receive the certificate, take it to the relevant bike shop
- Redeem the certificate against the cost of bike and equipment
- Salary sacrifice commences from your next pay packet
What happens if I leave my job during the hire?
There comes a time when every fish must move to a new pond. Or something like that. People leave workplaces for many reasons – so what happens then?
The employer is perfectly in their right to take the bike back, and use if for other employees as a ‘pool bike’ – but this is pretty unlikely. In most cases, both the soon-to-be-ex-employee and employer want the afore mentioned to keep the bike.
In this case, the employer will deduct the remaining balance from the final salary. Whether they charge the fair market value on top is up to them. Following this payment, the bike belongs to the former employee.
Jones said: “Some people never have to pay – the employer might decide to make a very generous leaving gift… if you were concerned at all, you can just say to the employer ‘I don’t want to keep it’, give it back to them and you won’t have to pay.”
Anything else I should consider?
Cycling UK made a good point when we spoke to them. Jones told us: “We’d always advise insuring the bike – during the period of the loan [the bike] is the responsibility of the employee – so if it is pinched then you still have to continue paying out.”
He also added that there could be a mild implication on benefits such as final salary pension schemes, maternity pay or statutory sick pay.
Jones explained: “Because of the salary sacrifice [which you don’t pay National Insurance on] your salary actually drops. So if you’re paying £90 a month for the bike, your salary is £90 lower. So it means that your final pension payment would be smaller, and the same applies to things like maternity payment and sick pay. In the grand scheme of things, it’s small fry,” but it might be worth bearing in mind for those nearing retirement.