The Cycle to Work scheme has reinvigorated the British cycle market in the last few years. Matt Lamy explains how you can make the most of it
What is the Cycle to Work scheme?
In a nutshell, Cycle to Work allows you to get up to £1,000 worth of bike and safety equipment through your employer. You then pay a monthly salary sacrifice charge to effectively ‘hire’ the bike and kit, typically over a 12 or 18-month period.
Then you’ll normally have the option of buying the bike outright at an ‘acceptable market value’, continue hiring it for free, or simply give it back.
What are the benefits of using the Cycle to Work scheme?
Firstly, it means you can have a nice, brand new bike right now without initially having to spend a penny.
Then, because you’re funding this through salary sacrifice, the ‘cost’ of the scheme to you is taken out in manageable monthly instalments, which also helpfully reduces your tax burden. If you so choose, you could have a new bike every year. Or, if you want to keep the bike, you can buy it for a small additional cost at the end of the agreement.
Will the Cycle to Work scheme save me money?
Er, yes, but it gets a little complicated. Let’s look at a specific instance. If you’re a standard rate taxpayer wanting £1,000-worth of Cycle to Work equipment on a 12-month scheme, your monthly salary sacrifice is 1/12 of £1,000 or £83.33.
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?
Now it gets trickier still. So far our calculations haven’t factored in the end-of-term ‘acceptable 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 less than £500||Original price more than £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.
Hold on, you said “if you want to buy your bike outright” — are there other options?
Naturellement, mes braves! Many schemes allow you to continue hiring the bike for up to another three years simply by paying a token refundable deposit (typically a small percentage of original cost). There will be no more salary sacrifices and you can continue to enjoy the bike. Or you could just give your bike back and start again.
Stay safe out on the road
Who can take part in the Cycle to Work scheme?
Pretty much any employee of a participating company can benefit — there is no means testing involved, so everybody is able to take advantage.
All you need to do is find out if your employer is signed up with a Cycle to Work scheme. Some companies may run their own system. Some may have teamed up with one of the major retailers — like Evans Cycles or Halfords. Or some companies may have partnered a third-party, Cycle to Work-specific organisation like Cyclescheme
I want to enrol in the Cycle to Work scheme – what should I do first?
There are slight variations between different schemes so you’ll probably have to speak to your human resources department and find out exactly what the situation is in your particular case.
Typically you’ll be told which retailers you can start window-shopping with. When you know what you want, you can then apply for a certificate or vouchers to cover the cost. Once your employer has signed off your request you’ll get your vouchers, you’ll go into the shop and, hey presto, a gleaming new pedal machine will be yours.
Have I got to use it for work?
Officially the deal is that you must use your Cycle to Work kit at least 50 per cent of the time for work-related journeys, but nobody is going to be following you with a clipboard and a time sheet to check.
However, let’s play the game fairly, so whether you decide on an mtb, a hybrid, a tourer or a road bike, make sure it’s something you can commute on.
What can I buy with a Cycle to Work voucher?
There is a £1,000 (including VAT) ceiling on what you can spend, but so long as the participating retailer has it in stock and it’s less than a grand, it’s yours. If your bike comes in under £1,000 and you want to make up the difference on accessories you can do that too. You can even use your £1,000 to buy accessories only.
Again, the ‘Cycle to Work’ nature of this deal comes into effect — so no handlebar tassles and spokey-dokeys please. Accessories have to be safety-orientated, such as reflective clothing or helmets.
Dress to impress
What if my employer isn’t signed up to a Cycle to Work scheme?
If the company you work for doesn’t have an in-house capability to run its own Cycle to Work scheme there is no end of external agencies who will run the administration needed for such a scheme free of charge to the employer and employee.It’s probably worth pointing out that employers will also typically save 13.8 per cent of the total value of salary sacrifice due to reductions in Employers’ National Insurance Contributions too.
Taking on the taxman
Cycle to Work isn’t the only way cyclists can put one over the taxman — fully above board, of course. Any work duties you use your bike for — other than commuting to your usual place of business — is liable for tax relief of 20p a mile.
Self-employed folk are probably well aware of this already, but even those on PAYE can take advantage of it. Also, don’t forget to ask if your employer offers a travel allowance for cycling. They can only say no.
Savings for standard rate taxpayer with gross salary of £2,000 a month:
|Monthly salary sacrifice||£83.33|
|Savings per month||£26.66|
|Savings per year||£320|
|Total payment towards £1,000 bike||£680|