Setting up a cycle to work scheme
Tax benefits for employers and health benefits and savings for employees – Growing Business looks at whether the government’s incentive could help motivate your team
Any new business needs to do everything it can to attract talent and to develop a tax efficient business model. Perhaps even more importantly, business owners need to build a healthy and positive ethos flowing through their company.
Let’s face it, we all want our employees to be healthy, alert, motivated and happy. That is how you get the most out of your teams.
Introducing the cycle to work scheme
The cycle to work scheme provides the opportunity to purchase or lease bicycles and equipment, and then loan them to your employees.
Employers of any size and from any sector can offer employees, free of charge, the opportunity to hire a bike to cycle to work as well as additional safety equipment (the bike and equipment should be used mainly for commuting, and/or for travelling between work purposes).
Not only does it promote a healthy lifestyle amongst your employees, the scheme also offers savings for both the business owner and employees. Employees can save between 32% for basic rate taxpayers and 42% for high rate taxpayers – exact savings are dependent on the individual’s tax band.
Additionally, if employees choose to pay via salary sacrifice (see below), employers can save 13.8% of the total value of the salary sacrifice, thanks to a reduction in national insurance contributions.
Many people set this up as a hire purchase agreement whereby the employees can purchase the bike at the end of the hire period. However, it’s important that you don’t frame things this way. More on that later.
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What are the tax benefits?
When you loan a bike to your employees they will pay hire payments for a fixed period, which could be 12, 18 or 24 months for example (there is no set time frame but it is usually around 12 months). These hire payments will tend to amount to the value of the bike minus VAT. As you are a business buying a bike for business purposes, you will be able to claim back the VAT on your purchase.
The employee payments will be national insurance and income tax exempt. In addition, in cases where you set up the scheme as a salary sacrifice scheme employer’s national insurance will not be paid on the loan payments.
What is salary sacrifice?
As with an annual season ticket loan, employees can choose to give up part of their salary in exchange for a non-cash benefit. If participants opt for salary sacrifice on the Cycle to Work scheme, their monthly payments will be taken from their gross salary (before tax) – meaning they will ultimately pay less income tax and national insurance.
In addition to national insurance savings, employers that purchase a bicycle and accessories for use by their employees can put them down under capital allowances. In many cases these capital allowances will fall under the Annual Investment Allowance. Therefore, there will be no tax payable as long as the company stays below the prescribed maximum capital allowance threshold.
The terms and conditions of cycle to work
It tends to be the case that these bicycle loans are between £200 and £1,000. The Office of Fair Trading will cover employers implementing the scheme with a limit of £1,000 including VAT but employers who have their own consumer credit licence can apply for a higher value.
As an employer, you must ensure you are offering a hire scheme and not entering into a hire purchase agreement as you will then lose the tax benefits intrinsic in the scheme. There is no automatic entitlement for employees to purchase the equipment at the end of the loan period so it’s important that you are clear of the terms from the outset.
If employees do wish to purchase their hire bike after the loan period has completed, they will not automatically be able to purchase the bikes that they hire, but there could be the opportunity to purchase second-hand bike stock from the company under a completely separate agreement. It makes sense that employees, after completing the loan period, are able to purchase a bike.
Health and psychological benefits
There are naturally lots of benefits from having your employees cycle to work. People are cycling on a daily basis tend to be healthier, meaning you have less days lost to sickness each year. They also tend to have more vitality and staying power in the workplace, meaning higher productivity.
In addition, the psychological stress of commuting to work tends to be lower for those that cycle. People turn up to work less stressed, and in a more balanced frame of mind. Studies have found that 30 minutes cycle can improve performance on reasoning, memory and planning tasks.
On top of all this employees that cycle to work tend to be late for work less, and they take pressure off available parking spaces. The benefits are endless.
It is an employer‘s responsibility to sign up for the scheme so that their employees are eligible. There are lots of facilitators out there to help you and you can find out additional information on the bicycle to work schemes online. You may also want to get some advice from your accountant, especially if you choose to take the salary sacrifice route; the paperwork can take a bit of completing.
We all need to do everything we can to stack the deck in our favour when we are starting up a business. This scheme could well be a great way for you to incentivise your employees, whilst also improving your bottom line.