Top gear for cycle to work schemes

Environmental concerns and a desire for a healthier lifestyle have helped to increase the popularity of cycling to work.

It’s not for everyone, but the government’s cycle-to-work-scheme (CWS) allows employers to loan a bicycle to their staff to commute to work in return for monthly payments from gross wages.

Previously, the value of a bike under the scheme was limited to £1,000, but this limit has now been removed.

Under CWS, the employee enters a 12-month hire contract for the bike with monthly payments equal to 1/12 of the price of the cycle. As this is carried out through salary sacrifice, the employee saves income tax and national insurance contributions (NICs), whilst the employer saves employer’s NIC.

At the end of the agreement, the employee has three choices:

1. Give the bike back to the scheme provider.
2. Buy the bike outright for its market value, which can typically be 18%-25% of its original price – thereby removing the tax savings.
3. Make a one-off payment of between 3% and 7% (depending upon the original price) of the original value to extend the hire period by another 36 months. At the end of this period, the bike can be purchased for between 3% and 7% of its original cost.

The majority of people take option 3.

Although there are various ways of operating a scheme, it is often the case that an employer purchases a voucher from a scheme provider which is then used with participating retailers. Deductions from the employee’s salary reimburse the employer for the initial cost.

As these deductions are made from gross pay, there is a tax and NIC saving.

The scheme also applies to cycle safety equipment such as helmets, lights and other accessories. More than one bike could be hired within the overall limit.

The scheme is not available for the self-employed.

Removal of the £1,000 limit

Until recently, most employers had to have a limit on the scheme of £1,000 so that they did not trigger the need for a consumer credit licence.

The government has now announced that FCA authorised third party providers are able to run the scheme, so an employer does not need to worry about a licence. This may increase the popularity of e-bikes which often cost more than £1,000.

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