Cycle to work scheme questions & answers

What is the Cycle to Work Scheme
How does an employer get reimbursed for the cycle?
Can employees change their minds once they have ordered under the scheme?
What is the salary sacrifice element of the Cycle to Work Scheme?
What about VAT?
Does it matter what the bicycle is used for?
How will the use of the bicycle be monitored?
Is there a limit to the value of the bicycle an employee can acquire?
Who is eligible to join a Cycle to Work Scheme?
Does an employee have to be a first time cycle owner to take advantage of the scheme?
How long does the employee Hire Agreement run for?
What if the cycle is damaged or lost?
Will our employees have to undergo any credit checks?
Does the Scheme need prior HMRC approval?
What happens when the payments have finished?
What if an employee leaves the company during the Cycle to Work Scheme?
What if an employee is retiring before the end of the agreement period, can they still participate?
What is the cost benefit as an employer?
It sounds too good to be true! What's the catch?

What is the Cycle to Work Scheme

The Cycle to Work Scheme was introduced in 2005 as part of the Government's campaign to get Great Britain fitter! In its simplest terms, the scheme allows an employee to acquire a cycle and accessories tax free; in fact most employees would save up to 46% of the retail price of a cycle*

*Exact savings will depend on the tax level of each individual and your organisation's tax status.

How does an employer get reimbursed for the cycle?

Employees will sign a binding Hire Agreement with the employer giving permission for the monthly cost of the cycle to be deducted from their gross pay via a salary sacrifice.

Can employees change their minds once they have ordered under the scheme?

Once the Hire Agreement is in place it is non cancellable and forms an amendment to the employees terms and conditions of employment. The documents will be supplied pre-completed as part of the scheme.

What is the salary sacrifice element of the Cycle to Work Scheme?

The salary sacrifice happens when an employee gives up the right to receive part of their salary due. This is neither a deduction from salary nor is it a change on salary; it is where the employee agrees to accept a lower amount of salary, in return for their employer providing them with the non-cash benefit of the bicycle and safety equipment. For a benefit such as a hired bicycle, where there is a specific tax exemption, the employee can receive a tax and NIC-free benefit instead of salary on which tax and class 1 NIC's would have been fully payable.

What about VAT?

All VAT paid by the employer in connection with obtaining the bicycles for the scheme can be reclaimed at the normal recovery rate for the employer
Salary sacrifice payments made by employees do not attract VAT so for most schemes the cycles are completely VAT free.

Does it matter what the bicycle is used for?

The bicycle can be used for any journey, work or pleasure. However, as the scheme has been launched by the Government to encourage people to use bicycles to travel to and from work at least 50% of the bicycle's use should be for work purposes.

This will include commuting i.e. all or part of the journey (for example to the station) from home to workplace or from one workplace to another. There is no need for employers or employees to keep records of how the bike is used

How will the use of the bicycle be monitored?

The employee and employer are not required to keep any records of use but employers do have to advise employees that if they do not use the cycle for work they may lose the benefit of the tax relief.

Is there a limit to the value of the bicycle an employee can acquire?

Due to Consumer Credit Regulation most employers limit the value of the cycle and equipment that can be acquired under the scheme to £1,000 inclusive of VAT. If the employer holds a Consumer Credit Licence then the limit need not apply.

Who is eligible to join a Cycle to Work Scheme?

Any employer in Great Britain can join the scheme.
Employers can limit eligibility of their employees to a degree but the scheme must not be limited just to the directors. There are also restrictions on part time and casual labour, and those on or close to National Minimum Wage. LHE Professions will be able to advise on setting appropriate eligibility criteria for an organisation.

Does an employee have to be a first time cycle owner to take advantage of the scheme?

No. Although the scheme has been introduced to encourage cycling among those who do not have their own bicycle, any eligible employee can use the scheme.

How long does the employee Hire Agreement run for?

It will need to match the criteria set for the scheme which is either 12 or 18 months.

What if the cycle is damaged or lost?

The employee is responsible for keeping the bicycle safe during the period of the agreement. The cycle should be insured and a home contents insurance policy will usually cover the new cycle.

Will our employees have to undergo any credit checks?

No. Provided that they meet any eligibility criteria set by the employer then no other checks are required.

Does the Scheme need prior HMRC approval?

No

What happens when the payments have finished?

LHE Professions will advise on and help employers to close the scheme down, take back any unwanted cycles and dispose of them.
The Hire Agreement requires employees to return the bicycle and equipment at the end of the hire period. However, once at that point a decision can be made to offer to sell the cycle and equipment for fair market value.
LHE Professions sell unwanted bicycles for between 5% and 8% (plus VAT) of their original price.

What if an employee leaves the company during the Cycle to Work Scheme?

The employee can keep the tax advantage for the time they were on the scheme, however, they will be required to pay any future outstanding gross salary sacrifice amounts as a lump sum from their final net salary payment; such a payment cannot be taken from gross pay.
If the final salary will not cover the entire final balance payment due, then the employee will need to pay the balance owed by other means.
If an employee is made redundant they will be treated as a leaver in the same way.

What if an employee is retiring before the end of the agreement period, can they still participate?

Yes, however, when they leave they will have to settle the outstanding balance from their final net salary payment.

What is the cost benefit as an employer?

An employer will save secondary class 1 NIC contributions on the employee’s gross salary sacrifice.

It sounds too good to be true! What’s the catch?

As long as you understand how the scheme works, there isn’t one. The Government is concerned with the health of the workforce in the UK and environmental factors linked with traffic pollution. With only one in three adults in the UK owning a bicycle they are using the scheme to promote and encourage cycling amongst the UK's workforce.