The bike to work scheme, introduced by the government is a tax break to encourage cycling to work. As part of a health and environmental initiative the aim is to both promote healthier journeys to work and to reduce environmental pollution. The basic principle of the scheme enables employees to “hire” a bike from their employers and pay back the cost of the bike by monthly installments taken from their salary, before tax. At the end of the hire scheme, (typically 12 or 18 months), the bikes are then sold to the employee for their “fair market value” (i.e. second-hand price).
The scheme introduced tax benefits for both the employer and the employee. As an employee you can choose any bike – including electric bikes, folding bikes and other specialist cycles, providing it can be supplied by one of Cyclescheme’s 1,600 Partner Shops (see below for your local shop). You can also acquire safety equipment including:
– Lights, including dynamo packs
– Mirrors and mud guards
– Cycle clips
– Panniers, luggage carriers and straps
– Locks and chains
– Cycle tool kits
The tax exemption removes the tax charge that would otherwise apply to equipment loaned to an employee. Also, by operating a salary sacrifice scheme employees are able to pay back the cost of the bike in monthly installments taken from their salary before tax. Typical savings are between 40% and 50% on the price of the bike and equipment, but the actual amount depends on the employee’s personal tax band and the way the employer runs their scheme. Higher rate taxpayers will save more, employees whose company cannot reclaim VAT (the NHS, for example) will save less.
Employers benefit too by encouraging a healthier workforce and by offering a tangible benefit to staff. Also for most businesses, expenditure on cycles and safety equipment will qualify for the Annual Investment Allowance (AIA). The AIA allows businesses to write off 100% of qualifying capital expenditure (up to £50,000 each year) against their taxable profits. So long as the scheme is available to all employees generally, employers save on Secondary Class NICs (usually around 12.8%) as the amount they’re paying in wages is also lower. In addition to this employers can reclaim VAT, which increases savings further (some employers choose to pass this saving onto the employee making the saving for the employee even more considerable).
There is no minimum or maximum company size necessary to sign up to the scheme. Employers of all sizes across the public, private and voluntary sectors can implement a tax exempt loan scheme for their employees. Eligible employees must be paying PAYE, earn more than the National Minimum Wage after salary sacrifice, and have a contract that does not end during the hire period. The tax exemption only applies when an employee mainly uses the cycle and cyclists’ safety equipment for qualifying journeys. A qualifying journey for an employee means a journey, or part of a journey, In this case, ‘mainly’ means that more than 50% of use of the cycle and safety equipment must involve a qualifying journey.
We have teamed up with…. Greenwheel Cycles which is Peterborough’s newest premier cycling centre first and the only cycle shop in Peterborough with an in house pro fitting centre. Daniel Read, managing director, has all sorts of opening offers and is fully aware of how the cycle to work scheme applies. You can visit the website by clicking on the link above or by calling 01733 305133.