Cycle to work Employer FAQ


Cycle to Work scheme details for employers


Like the thought of healthier workforce? Fancy adding another company benefit to your current list? A Cycle to Work Scheme is a great product to offer your staff.

 

 

What is the Cycle to Work Scheme?

Cycle to Work is a government sponsored scheme for employers to loan bikes and approved cycling equipment to staff as a  tax-free benefit. The bicycles should mainly be used to commute to work or for other work-related purposes.

 

Why should I be interested in my staff cycling to work?

Regular cyclists tend to be healthier than non-cyclists, which means you can have a fitter, more motivated workforce. Cyclists may even arrive in work ahead of their car-driving colleagues stuck in traffic jams. Also, it’s a great benefit to add to your portfolio, and will also reduce the need for car parking spaces and create a ‘greener’ corporate image for cycle-friendly employers. There are also financial savings to be had…

 

What kind of employer savings does the cycle scheme offer?

Employers can treat the cost of loaning cycles and cyclists’ safety equipment to their employees, as long as it’s a business asset, as capital expenditure and claim capital allowances in the normal manner. Your auditors or tax advisors will be able to determine the specific accounting treatment and calculate the tax deduction available. Organisations that do not currently pay tax (e.g. public sector employers) will not be able to claim a deduction. More information is available here:

http://www.hmrc.gov.uk/ct/forms-rates/claims/capital-allowance.htm

Example Capital Expenditure*
Cost of bike £450
VAT reclaimed Non-VAT reclaimed
Year 1 capital allowance
(Year 1 SME capital allowance)
£382.98×25%=£95.75
£382.98×40%=£153.19
£450×25%=£112.50
£450×40%=£180.00
Year 2 capital allowance
(Year 2 SME capital allowance)
£287.23×25%=£71.80
£229.79×25%=£57.45
£337.50×25%=£84.38
£270×25%=£67.50


*For illustration only – figures based on 2006/7

 

How does a cycle scheme work?

All  cycle to work, cycle schemes and salary sacrifice schemes work on the basis that employers buy bikes and safety accessories chosen by the employee(s). These are loaned to the employee for a set period, usually 12 or 18 months, and the employee pays hire charges deducted from their gross salary (aka ‘salary sacrifice’). Employers can claim back VAT, save on National Insurance payments and claim capital expenditure. At the end of the agreed period, you may sell the equipment to the employee for a nominal amount, or retain ownership and let the employees use the equipment for free.

 

Who is eligible?

Employers of all sizes across the public, private and voluntary sectors can implement a tax exempt loan scheme for their employees. The scheme should be open to all groups of employees within an organisation.

Warning – for certain employees, participating in the cycle to work Scheme could mean that their salary falls below National Minimum Wage. To avoid this, employers can offer a lower value cycle package and/or a longer than usual hire period, offer a loan bike without salary sacrifice (paid for in full by the company), or a pool of bikes for those staff to use.

 

We’re already using Cyclescheme.

Tredz are also part of Cyclescheme and can provide you with a quote. Your employee can then take their voucher into our Cardiff or Swansea bike shops. If they live elsewhere they can use our website to find the bicycle/equipment they like. They can then call us on 01792 799508 so we can reserve the bike while they send us their Cyclescheme voucher.

 

Can anyone in the company run a scheme?

Yes, anyone in an organisation can promote and manage the process. An authorised representative must sign the employee Hire Agreement so that it can be executed, but it is advisable to involve your HR and Finance departments in the initial set up and discussion.

 

Authorisation of a cycle to work scheme

Prior approval by HMRC is not required for a cycle to work scheme taking advantage of the 1999 tax exemption or where salary sacrifice arrangements are used to offset cost. However, once a cycle to work scheme is in place an employer might want to check with HMRC that tax and National Insurance Contributions do not have to be accounted for on the amount sacrificed.

 

How long does a cycle to work scheme have to run for?

There is no fixed time period for which cycles and cyclists’ safety equipment must be loaned under a cycle to work scheme, or for the duration of a salary sacrifice scheme. However, if a salary sacrifice arrangement is to be in place for longer than 18 months, an employee has the right to terminate early after the first 18 months has expired.

What type of journey qualifies for an employee to be eligible?

The cycle and equipment must be used mainly (i.e. at least 50% of use) for commuting to work, for journeys made between the home and workplace, part journeys (e.g. to a station), for journeys between one workplace and another or in connection with the performance of employees’ duties of employement. If, after joining the scheme, they don’t use the cycle and/or equipment mainly for commuting, they will no longer qualify for the tax relief afforded to this benefit and cannot return the cycle and have their salary readjusted. Employees are not expected to keep mileage logs but should be made aware of the implications of losing the benefit of tax exemption.

Can I buy cycles and equipment outright under the scheme?

Under a ‘salary plus’ arrangement, you can loan cycles or equipment to an employee without their normal salary arrangements being affected. More commonly, employers want to recover the cost of providing cycle and equipment loaned to the employees, through a salary sacrifice arrangement.

How does a salary sacrifice arrangement work?

A salary sacrifice happens when an employee gives up the right to receive part of their cash pay due under their contract of employment. The employee agrees to accept a lower amount of salary, in return for the employer’s agreement to provide some form of non-cash benefit (in this case the loan of cycle or cyclists’ safety equipment), so it is neither a deduction from or a charge to your salary. As the benefit is covered by a tax exemption, the employer will not have to account for Class 1A National Insurance Contributions.

Example of calculations

 

E.g.
Cycle/equipment worth £500
Loaned over 18 months
Employee’s salary sacrifice (gross) – £6.41 per week
Employee’s salary sacrifice (net of tax and NICs):
Basic rate taxpayer (20% income tax + 11% NICs) – £4.42 per week
Higher rate taxpayer (40% income tax + 1% NICs) – £3.78 per week

 

For fuller guidance on salary sacrifice you may wish to view the HMRC website.

What about employer National Insurance Contributions (NICs)?
Where costs of loaning equipment to the employee are offset through a salary sacrifice arrangement, the employer saves Secondary Class 1 NICs (at up to 12.8%) on that part of the employee’s gross salary sacrificed.

 

E.g.
Cycle/equipment worth £500
Loaned over 18 months
Employee’s salary sacrifice – £500 of gross salary
Employer’s NIC savings – £64.00 per employee

 

What effect will a salary sacrifice have on benefits employees already receive?

Employers need to communicate the effect that a salary sacrifice may have on pension schemes, contribution-based benefits such as State Pension; earnings-related benefits such as Maternity Allowance; and entitlement to work-related payments e.g. Statutory Sick Pay. A salary sacrifice will not necessarily have an impact on entitlement to holiday pay and bonuses, which are usually calculated separately using the previous higher rate of pay. A fuller explanation of the potential impact on benefit entitlement should be obtained from:  The HMRC website

 

What about VAT?

Where an employer purchases or leases cycles and cyclists’ safety equipment, VAT will be incurred on the cost (barring helmets which are zero rated) at the point of purchase or on leasing payments for that equipment. Where the equipment is for use in a cycle to work scheme for employees, VAT is incurred for the purpose of the business of the employer and may be treated as input tax, subject to the usual rules on VAT recovery. Please note that according to the recent CJEU ruling, from 1 January 2012, employers can still buy bikes tax-free but employees taking part in the scheme will be charged VAT on the “value of the salary foregone” in exchange for the hire of the bike. If at the end of the salary sacrifice period the employee is given, as part of a separate agreement, an option to purchase the equipment and they choose to do so, then any charge made will be liable to VAT.

 

Who owns the equipment?

The Employer owns the equipment according to the legislation governing cycle to work schemes, and there is no automatic right for the employee to own the equipment when the Agreement ends. A cycle to work scheme operates as a loan, with the employer loaning the equipment to the employee for a fixed-period of time. Employees remain responsible for the equipment and, providing it is used mainly for cycling to work, can use it as they wish.


What happens at the end of the loan period?

There is no automatic entitlement for employees to take ownership of the cycles and safety accessories on the expiration of the loan period, but employers can choose to give them the option to purchase the equipment (usually under a new agreement). At the end of the agreement period, an employer can offer to sell the equipment to employees for its fair market value at that time (inc VAT). This means the amount a buyer would pay to a seller to purchase the bike taking into account its current condition and second hand value. No tax relief is available to the employee for the purchase so, where the price is recovered from salary, it must be deducted from their net salary. VAT will also be payable on the purchase price by the employee.

 

What is the maximum value of equipment an employee can obtain through cycle to work?

The Group Consumer Credit License issued by the The Office of Fair Trading allows any employer to run a cycle to work scheme, allowing employees to hire equipment up to the value of £1,000 inclusive of VAT. As an employer, you can then choose to offer whatever range of values within the £1,000 limit.


Can employees use the scheme to get a bike for a family member, partner or friend?

The cycle and equipment must be used only by the employee, however child seats are covered by the scheme, so they would be able to transport a child.


Where can employees obtain cycles and cycling equipment?

Tredz of course! Our friendly, knowledgeable staff can help your employees select the right cycle/cycling equipment from our wide variety of products and brands.

 

What if a bike gets stolen/accidentally damaged?

If an employee’s home contents insurance policy covers the bicycle, they must inform your insurer that their Employer owns the bike. If not, they will need to obtain separate insurance. Loss or damage to the bike will not result in repayments under the scheme being stopped or suspended.


What if an Employee leaves early or is made redundant?

The employee will be required to pay the balance of the amount left to you if they leave before the end of the hire period. They can then continue to use the equipment (without further payment) until the expiry of the hire period and may then be offered the chance to purchase the equipment for its then fair market value. This transfer of ownership would then be the subject of a separate agreement to the Hire Agreement signed for this scheme.

 

What do I do to join your cycle scheme?

Just give us a call (01792 799508) or email Tredz cycle to work and we’ll sort this out for you.

Please note: while employees can benefit from the great discounts Tredz offers in addition to the cycle to work savings, we have to reduce the discount by 10% on discounted items due to the Scheme’s admin charges. So, for example, an existing 25% discount becomes 15% on the Scheme (they will still get the additional cycle to work discount on top of this).

 

What about the paperwork?

As the equipment is hired to the employee(s), an official Hire Agreement is required under the Consumer Credit Act. To make the scheme easy to use, the Office of Fair Trading has issued a ‘Group Consumer Credit Licence’ for employers which covers purchases up to £1000. Should you wish to provide equipment worth more than £1000 then you need to obtain a Consumer Credit Licence. For information on Consumer Credit Licence applications see www.oft.gov.uk .

 

Where can I find further details?

Guidance and further details on the benefits and implementation of Cycle to Work Schemes can be found on the website of the Department of Transport under Sustainable Travel. A comprehensive set of Cycle to Work Scheme FAQs can be found in this downloadable leaflet which will help to answer any additional questions. Information is also available from our Cycle to Work partner Cyclescheme: www.cyclescheme.org.uk

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