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January 25th 2020

Get fit - with the Cycle to Work Scheme

The Cycle to Work scheme is a great way for UK cyclists to save up to 42% off the cost of a bike. In essence, your employer buys a bike for you to ride to work, you ‘hire’ it through salary sacrifice (which is where you save by not paying tax and National Insurance on the monthly fees) and at the end of the ‘hire’ period you buy the bike from your employer. In other words, your salary sacrifice is made from your gross salary, not your net salary.

Hundreds of thousands of people have already bought a bike on the scheme, which was introduced as a tax exemption in 1999 by the government to ‘promote healthier journeys to work and reduce environmental pollution’.

Because it was set up to promote work journeys rather than cycling in general, your employer technically remains the owner of the bike once you finish the hire period. Everyone knows that in practice the employee is ‘buying’ the bike, but that isn’t legally the case until the salary sacrifice ends and the employer ‘sells’ the (now heavily depreciated) equipment to the employee (normally 18% - 25% of the certificate value of the bike).

For the first 20-years of the scheme it was widely assumed that your employer could only buy the bike of your choice up to a value of £1,000. However, in June 2019 the Department of Transport sought to clarify that, in fact, if the bike shop you use is registered with the Financial Conduct Authority then you can choose a bike and equipment worth more than £1,000. The clarification was in response to the general increase in bike prices over the past two decades, but also in a bid to encourage more employees to switch to electric bikes – few of which cost less than £1,000.

However much you spend, the scheme works in the same way – because payments are made from your gross salary you pay less income tax and National Insurance, hence making savings.

Contact us for further details.

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