Buyer’s guide to cycle-to-work schemes (August 2009)

Cycle-to-work schemes pay off in many ways, but check the compliance details, says Scott Beagrie

Cycle-to-work schemes allow employees to benefit from a long-term, tax-free loan of a bicycle and safety equipment. The tax exemption was introduced in the Finance Act 1999 and is aimed at reducing traffic congestion and pollution, as well as encouraging healthier commuting. It was rebranded cycle-to-work in 2005. To qualify for the tax exemption, the bicycle must be used as a method of transport for at least part of an employee’s journey to and from work, or between different workplaces.

Staff who take advantage of the scheme select a bike from an approved supplier and the employer buys (or leases) it for them and reclaims the VAT. The cost of the bike minus VAT is deducted from the employee’s salary in equal installments, usually over 12 or 18 months. The employee pays no tax or national insurance (NI) on the portion of income sacrificed, and the savings realised can be up to 50%. At the end of the period, an employer can give the employee the option to buy the bike at a fair market value, typically 5-10% of the original price.

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Salary sacrifice scheme

As with any salary sacrifice scheme, staff are ineligible to take part if the deductions cause their pay to fall below the national minimum wage. Wheelies Direct Cycle Solutions, which provides the scheme for organisations such the Ministry of Justice, says its terms and conditions put the onus on the employee to ensure the equipment used is appropriate and any liability falls to them. Managing director Steve Edgell says: “To ensure this is the case, the organisation should use a reputable company which has undergone all the due-diligence checks on its paperwork.”

Employers entering into a cycle-to-work scheme are covered by a group consumer credit licence issued by the Office of Fair Trading, which stipulates that the maximum value of goods supplied is £1,000 and the loan period cannot exceed 18 months. Organisations that want to offer packages in excess of £1,000 must apply for an individual consumer credit licence. If an employee leaves before the end of the loan period, the employer is responsible for collecting any remaining payments, so terms and conditions need to spell out that this is a legal requirement. Staff aged under 18 years are prohibited from the scheme because they cannot enter a credit sale agreement.

Charles Ashwell, corporate sales manager at provider Halfords, says some organisations allow staff to add cash top-ups once a scheme has been entered into, which renders the scheme non-compliant and so the tax could be repayable. “We still see instances where this whole issue of top-up is not clarified correctly and still allows an employee to add cash value, and that is putting the employer at risk,” he says. “The guidance is very clear. [Employees] cannot add cash value, which is stated on the Department for Transport’s website.”

Communicating cycle-to-work schemes

Communication is also crucial to ensure the success of a cycle-to-work scheme. Any material should clearly explain how the tax break works and should not include the words “purchase” or “buy”. Chris Downing, client relationship manager at Jelf Group, says one area where employers often fall down is communicating the importance of inputting the correct gross figure when making calculations, particularly if an employee is signing up to it through a flexible benefits scheme, because it could skew their benefits entitlement elsewhere. “It is very important for the flex provider or employer, if they are dealing directly, to monitor the take-up and get copied in on as much of the communication as possible to make sure employees are inputting the correct figures into the site,” he says.

“We have seen increased take-up when an employer has invested in the communication properly. Take-up is typically 3% to 5%, but if [they] get the communication right, it could go as high as 8%.”

Product file:

What are cycle-to-work schemes?

Cycle-to-work is a tax-free loan scheme operated under a salary sacrifice arrangement. Employers buy the bike for the employee and the amount is deducted in equal instalments from their salary, typically over a 12- to 18-month period.

Where can employers get more information?
More information can be found at:

The main providers include:

  • Cycle Scheme
  • Cycle Surgery
  • Evans Cycles
  • Halfords
  • Wheelies Direct Cycle Solutions

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