The Cycle to Work Scheme offers a tax-efficient way to obtain a bicycle and associated equipment through salary sacrifice, resulting in savings on tax and National Insurance for employees.
Employers also benefit from reduced National Insurance contributions.
Key Points for Employees
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Eligibility and Enrollment
- Employees must be over 16, earning at least the National Minimum Wage after the salary sacrifice deduction.
- Enrollment is typically done through the employer, who will have a provider or arrangement in place.
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Salary Sacrifice Arrangement
- Employees agree to a salary reduction in exchange for the use of a bicycle and safety equipment.
- The salary sacrifice must not bring the employee’s gross pay below the National Minimum Wage.
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Tax and National Insurance Savings
- Employees save on Income Tax and National Insurance contributions as the cost of the bicycle is deducted from gross salary.
- For a basic rate taxpayer, this could mean a saving of up to 32% on the cost of the bike and equipment.
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Equipment Covered
- Bicycles and cycling safety equipment are eligible, including helmets, lights, locks, and reflective gear.
- The scheme does not cover accessories that are not safety-related, such as cycle clothing.
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Ownership and End of Hire Period
- Initially, the employer technically owns the bicycle.
- At the end of the hire period (typically 12 to 18 months), employees can usually choose to extend the hire period, purchase the bike at fair market value, or return it.
- HMRC has set standard fair market values, typically 18% to 25% of the original price after five years.
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Using the Bicycle
- The bicycle should be used primarily for commuting to work and work-related activities, although personal use is allowed.
Key Points for Employers
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Setting Up the Scheme
- Employers can set up the scheme through a third-party provider or administer it in-house.
- Ensure compliance with HMRC rules on salary sacrifice and National Minimum Wage.
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Financial Benefits
- Employers save on National Insurance contributions on the amount of salary sacrificed by employees.
- Offering the scheme can improve employee satisfaction and reduce absenteeism due to better health and well-being.
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Administration and Compliance
- Maintain clear records of the salary sacrifice arrangements.
- Ensure the scheme is available to all employees on an equitable basis.
- Report the benefits correctly on the annual P11D form or via PAYE Settlement Agreement if applicable.
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Asset Management
- Keep track of the bicycles as assets during the hire period.
- Handle the transfer of ownership at the end of the hire period according to HMRC’s fair market value guidelines.
Example Calculation for Employees
- Cost of Bike and Equipment: £1,000
- Salary Sacrifice Duration: 12 months
- Monthly Salary Sacrifice: £83.33
Savings Calculation (Basic Rate Taxpayer):
- Income Tax Saving: £200 (20% of £1,000)
- National Insurance Saving: £120 (12% of £1,000)
- Total Saving: £320
Thus, the effective cost of the bike and equipment would be £680 instead of £1,000.
Conclusion
The Cycle to Work Scheme offers significant benefits for both employees and employers, promoting healthier lifestyles and reducing environmental impact. Employees can save on the cost of a bicycle
and equipment, while employers benefit from reduced National Insurance contributions and a healthier, more motivated workforce. For specific advice tailored to individual circumstances, consult with
Berkeley Accountants or HR representative familiar with HMRC guidelines.