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 stand outside your workplace with a clipboard, totting up your journeys – 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.
Ride to Work, Evans Cycles’ scheme provider, tells us the average spend is £800 – a figure it says is “a slight increase from recent years [due to] the cost of bikes rising due to inflation and exchange rate fluctuations.”
In 2010, changes were made to the ‘fair market value’, which could have rendered the scheme less useful. However, it is still widely used and, according to national cycling charity Cycling UK, very worth it.
Sam Jones 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.
Commenting on the scheme’s place in the landscape of the cycling industry today, a representative from Evans Cycles’ scheme provider Ride to Work told us: “It is the most affordable way to get a bike and, or, cycling equipment, allowing you to get both a reduced cost, and to spread the payments. It’s like zero per cent finance, but better.
“Likewise with Evans Cycles you can double this up with sale items too. Finally, don’t forget that each time an employee joins a cycle to work scheme, employers reduce their own National Insurance Contributions too.”
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, there are several other (cheaper) options.
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 – higher rate earners will save more.
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’ Ride to Work 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 one individual 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 £2000 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 £1000 — it’s obvious enough, that’s your combined Income Tax and NIC rate) and pay only £680 towards your £1000 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. Though it’s questionable if they’ll ever want your smelly shoes, or the backpack you spilled the contents of your lunchbox in, back.
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 £1000 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.
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 to Work scheme, offered by Evans Cycles, provides a similar service – it recommends you use its Tranfer For You 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.
A representative from the scheme at Evans Cycles told us: “With Ride-to-Work the most popular option is to enter a free of charge extended use agreement called Transfer For You. Other options include paying 18 to 25 per cent FMV [fair market value] at the end of the first 12 months, opting to declare it as a Benefit in Kind via P11D, or the final and rare occurrence is some people choose to return the bike to the scheme provider.”
Lock your bike securely, and do insure it
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.”
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 likewise-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.
Explaining the options, Evans Cycles’ representative told us: “If you leave your employer before you have completed the salary sacrifice term, any balance remaining must be repaid from your final net salary, i.e. without tax or NI savings. To take ownership of the bike a transfer of ownership process will also apply within the HMRC Fair Market Valuation guidelines. Your employer will be able to advise which transfer option would apply to you.”
Jones said: “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.”
It’s also reasonable to ask if your pension or other benefits could be affected by opting in to the scheme. The Cyclescheme explains “pensionable earnings are calculated on your gross pay before any salary sacrifice you may have in place.”
It’s the kind of thing worth running by someone on your side though, Evans Cycles told us: “Generally, the scheme doesn’t affect final salary pensions or other benefits but it’s always best to check with HR or Payroll in advance.”