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Cycle To Work Scheme

A recent Cycling Scotland survey reported that the popularity of cycling increased substantially during lockdown and to provide further encouragement, many local authorities are revamping their plans for improved access to bicycles in towns and city centres.

This has created an opportunity for employers to offer a relevant benefit to their employees through the Cycle to Work Scheme. This scheme has been around for a number of years, allowing an employer to provide a bicycle to an employee under a salary sacrifice agreement.

A monthly amount is deducted from the employee’s gross salary, usually for 12 months, for the use of a bicycle purchased by the employer. This saves tax and national insurance for the employee compared to buying a bicycle themselves and also saves national insurance for the employer.

After the initial 12 month rental period, the employee can purchase the bicycle from the employer at a fraction of its original cost or continue renting it for a negligible amount.

Electric bicycles are also included in the scheme and foldable versions of these are becoming very popular with commuters. The scheme also covers the purchase of many bike accessories such as helmets, lights and locks.

Below is an example of the how the Cycle to Work Scheme works:

An employee would like to get a new bike costing £500, together with accessories costing £100, to travel to their work and to use for leisure purposes at the weekend. They go to their employer who is a member of the Cycle to Work Scheme, who buys the bike and accessories, and deducts £50 per month from the employee’s gross salary for the next 12 months.

If the employee is in the 21% tax band they would save £126 of tax and £72 of national insurance for the year, a saving of £198 compared to purchasing the bike themselves. A higher rate tax payer would save at least £246 in tax alone. The employer also saves 13.8% national insurance costs because of the reduced gross salary, a saving of £83 in this example. Capital allowances of 100% can also be claimed on the purchase costs, if the annual investment allowance hasn’t been fully used up for the year – using this example, it would save another £114 in tax.

There are of course rules and regulations you should review before entering into any agreement. The Government have put together detailed guidance for employers who want to put in place a Cycle to Work Scheme, that can be found here.

If you would like to discuss how the Cycle to Work Scheme would work in your business, or any other employee benefits schemes, please email our EQ Taxperts or call your local office contact.

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