What better day to think about the cycle to work scheme, than today, 5th August, Cycle to Work Day, 2021.
We all know that getting outside and exercising more brings greater benefits than simple physical fitness. Regular exercise improves our overall health, including mental health and mood. Cycling brings even more benefits, reducing traffic and congestion and reliance on public transport.
The Government’s Cycle to Work scheme has been designed to benefit employees and employers alike and usually uses a salary sacrifice scheme.
Salary Sacrifice Scheme
The employer buys or leases cycles and equipment from a third party retailer or specialist leasing firm, then leases these to their employees. This is typically leased over a 12 month period, under a consumer hire agreement.
Employers take an amount from each participating employee’s gross salary, to cover the rental fee. As this is taken out of the salary before tax and NIC are calculated, employees pay less tax and NIC and employers also benefit from reduced employers’ NIC payments. At the end of the lease, the employee can buy the bicycle and equipment from the employer under a separate agreement.
- The employee must not own the cycle or equipment at any time during the hire period. After the period finishes, a separate agreement must be made if the employee wants to buy the cycle and equipment.
- The consumer hire agreement will typically be between the employer and the employee, but could be with a third party scheme provider.
- The tax advantages of the cycle to work scheme only apply if the cycle is owned by the employer or a third party and is used mostly for commuting or business travel.
- Employees should be aware that salary sacrifice schemes could have some impact on contribution-based benefits, like pension schemes, earnings-related benefits like maternity pay, or work-related payments like statutory sick pay. The impact may be small but it is still important to inform the employee.
- Some businesses may be able to write off 100% of the cost against taxable profits. Check with your tax advisor to confirm.
- If leasing cycles and equipment, the cost will be a deductible expense against profits.
With so many considerations, you may want to talk to us if you are considering the scheme. The Trivium London HR team know some excellent scheme providers that are simple to set up and hassle-free to manage.