CYCLE TO WORK
Everything you need to know
The Cycle to Work scheme is a great way for UK cyclists to save at least 32 per cent off the cost of a bike and cycling equipment.
It’s been used by over 1.6 million commuters working for over 40,000 different employers since it was introduced by the government in 1999 to “promote healthier journeys to work and reduce environmental pollution”.
The Cycle to Work scheme is a great way for UK cyclists to save up to 47% off the cost of a bike. Let’s have a look at how it works and whether you’re eligible.
How does the Cycle to Work scheme work?
In essence, your employer buys a bike for you to ride to work and you ‘hire’ it through salary sacrifice (which is where you save by not paying tax and National Insurance contributions on the monthly fees). At the end of the ‘hire’ period, you are usually offered the option to buy the bike from your employer.
In other words, your salary sacrifice is made from your gross salary, not your net salary.
Because it was set up to promote work journeys rather than cycling in general, your employer technically remains the owner of the bike once you finish the hire period.
Everyone knows that in practice the employee is ‘buying’ the bike, but that isn’t legally the case until the salary sacrifice ends and the employer ‘sells’ the now heavily depreciated equipment to the employee.
Why use the Cycle to Work scheme?
• You’ll live longer — says the NHS
• It saves the entire CO2 output of a city the size of Hereford each year
• Cycling to work can help you lose weight: you’ll burn between 75 and 670 calories a journey, obviously depending on how far your journey is (according to www.weightlossresources.co.uk)
• It’ll make you feel happier, getting you outside in the sunshine boosting your levels of vitamin D
• You’ll save money on commuting while also easing congestion
How much money will I save on buying the bike?
That depends on your tax bracket – and of course on the value of the bike and kit you buy.
Since your monthly payments on your bike reduce your gross salary, you’ll save the tax and National Insurance contributions you’d pay on that chunk of your pay packet over the term of the Cycle to Work agreement.
So, for a basic rate taxpayer, that will amount to 32 per cent of the purchase price.
For a higher rate taxpayer that increases up to 42 per cent, with the 40 per cent tax rate currently kicking in at £50,000.
In some places, you’ll see savings of 47 per cent mentioned – but they don’t kick in until you’re earning over £150,000.
Cycle to Work calculator – typical savings
Here’s a table of typical savings for a bike purchase on a Cycle to Work scheme:
|Cost price of bike plus accessories||£1,000||£1,000|
|Rate of tax plus NICs||32%||42%|
|Net cost of bike plus accessories||£680||£580|
|Saving on cost of bike plus accessories||£320||£420|
|Net salary deduction over 12 months||£56.67||£48.33|
If you’ve got a price in mind and you know your gross salary, there are calculators online, such as that on the Green Commute Initiative’s site, that will work out indicative numbers.
What happens at the end of the Cycle to Work agreement?
Technically, you’ve hired your bike from the scheme for the length of your agreement and you’ve got a few options at the end of it:
1. Enter into a new agreement, paying a small deposit to rehire the bike
2. Buy the bike from the scheme
3. Give the bike back
A new agreement might run for different lengths of time, depending on the scheme you’ve signed up to, but will typically take your usage of the bike up to four or five years.
It’s worth noting that to buy the bike at the end of the term, under HMRC rules, you need to make a one-off payment to the scheme provider. The value of this will depend on how long you’ve been using the bike and its initial value, and uses a sliding scale.
Here’s a table of the minimum value that HMRC places on a used bike of different ages:
|Age of bike||If original price is less than £500||If original price is over £500|
|6 years or more||0%||0%|
Providers won’t usually extend the agreement beyond a specified term. Even if you keep the bike until it’s worth zero, you’ll probably have to make a nominal payment to the provider to assume ownership.
If you leave your employer while the initial Cycle to Work salary sacrifice agreement is still in force, you’ll need to pay off the balance and usually the depreciated value of the bike too, if you want to keep it. You have the option to give it back to your ex-employer too.
What schemes are available?
We accept most popular Cycle to Work Scheme vouchers.
Do I have to ride my Cycle to Work bike to the office every day?
Relax, no one is going to be checking up on you to see how often you’ve ridden it.
Of course, the idea is that it’s used to “promote healthier journeys to work and reduce environmental pollution”, so using it as part of your commute is the obvious goal.
However, there is no scrutiny over the type of bike you buy, so you could very well choose to buy a full-suspension enduro slayer to ride to work on (and then make sure it still works okay every weekend).