thebreakpad - Bike Shop, Kirroughtree Visitors Centre, Palnure, Newton Stewart, Dumfries & Galloway, DG8 7BE - Tel: 01671 401303 Email: info@thebreakpad.com

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CYCLE TO WORK SCHEME

Timeline (approx 2 weeks)

Employer joins the scheme

Employee goes to thebreakpad and receives advice from us about the most suitable bike for their needs

Employee then receives a Quote

Employee takes this doc to their employer for processing

Employee receives confirmation of this and bike shop orders bike

Employee collects a voucher from employers and redeems it in bike shop

We, thebreakpad staff will set you up on your new bike...away you go

What is the Cycle To Work Scheme?

"Look out for a brand new bike Cycle to Work leaflet in your pay packet."

Cycle to Work is a tax incentive aimed at encouraging employees to, er, cycle to work, thereby reducing air pollution and improving their health.

The scheme allows employees to benefit from a long term loan of bikes and commuting equipment such as lights, locks and panniers completely tax free.

Employers benefit from fitter, more punctual, more wide-awake staff. Employees benefit from better health and better bikes because their money goes further. There's more bike commuting positives in this free and online 50-page Bike to Work Book. With a budget of, say £400, an employee in the high tax-band can now afford a bike, plus accessories, worth nearly £800.

The typical saving for an average tax-payer is between 38-45 per cent. There are online calculators to help you see how much you may be able to save. This one is from Cyclescheme. Type in your salary, the cost of your new bike and the cost of accessories such as a helmet, lock, panniers and so forth.

And to encourage cycling to work, the government created a little publicised incentive in 1999 to encourage employers to help their employees acquire tax-free bikes. In 2005 this scheme was re-branded as Cycle to Work.

Employers can loan bicycles to their staff as a tax-free benefit on the condition that the bicycles are mainly used to get to and from work or for work-related purposes. The employee ‘buys’ the bike at the end of the load period for a nominal sum.

NUTS & BOLTS

According to the official Department for Transport info, the Cycle to Work scheme works thus:

* Your employer signs up for the scheme * You then choose a bike from us at thebreakpad * The bike is then bought by your employer who reclaims the VAT * You then take delivery of the bike for your exclusive use - provided you use it for qualifying journeys, i.e. commuting to work * The VAT free price is then deducted from your salary by equal instalments over a period of time (typically 18 months), but as you don’t pay tax or NI on the income you forego, this will give you further savings. * After the period of salary sacrifice, the employer may give you the option to purchase the bike at a ‘fair market price’, though depends on the period you have had the cycle loaned to you.

This ‘fair market price’ is usually five percent of the original package price. So, after a 18 month ‘loan’ for a bike package costing £1000, the employee takes full ownership for just fifty quid. The actual discount available to an employee will be based upon their own personal tax circumstances (higher tax payers get fatter discounts) and whether their employer can recover all VAT. Some public sector employers (such as the military), charities and some others may not be able to recover all the VAT.

FAIR MARKET VALUE (FMV)

A Cycle to Work bicycle is 'hired' to the employee and hence does not fall into a benefit category. If the right to purchase the actual bike hired by an individual employee is guaranteed then this would change to a benefit in kind and exit the salary sacrifice offering.

Cyclescheme, one of the Cycle to Work facilitators, believes that the fair market values offered for a second hand bike, used for a year to cycle to work, would be 'scrap value' and 5 percent of the original voucher value (i.e. bicycle and safety equipment which normally amounts to 15 percent of the package). Bicycle shops are not generally interested in selling second hand bikes as they will need to give a warranty on something that has no service or use record. They will offer less than half of the shop retail value which would be the price that the employee would get via eBay or local papers, notice boards and so on.

Here’s an example of how Cycle to Work helped 'John':

1. Under his employer’s scheme, John chooses to have the loan of a bike retailing at £450

2. His employer reclaims the VAT – reducing the cost to £383

3. This net amount is met by John agreeing to a salary sacrifice whereby his gross pay is reduced by £21.28 per month over 18 months

4. The monthly net cost to John will be £14.26 because he doesn’tpay tax or national insurance on the gross pay (£21.28) that he has sacrificed

5. At the end of the 18 month period John’s employer offers the ex-loan bike for sale at a fair market price

e.g. £50 (To establish the fair market price, employers should obtain quotes from local bike shops as the value of the bike will partly depend on the level of use)

6. The cost to John is:

• Net salary given up £14.26 x 18 months = £256.68

• Cost to buy the bike at end of the period = £50

• Total cost to John (68% of retail price) = £306.68

BIKE OR JUST BITS?

Many existing cyclists ask whether they can use the Cycle to Work scheme to buy just accessories, as they already have the bike.

In theory, this is allowed - the fine print says "bicycles and/or safety equipment" but as most schemes are now run by third-party facilitators it's usually their rules you have to play by. 
Many facilitators say they have a £200 minimum (and some have a £1000 maximum), and this is to discourage a cyclist asking to buy just a helmet and a lock under the scheme (although this can easily come to £200 for quality items). However there will be some people who want a frame or wheels or some other integral part of the bike like a groupset which means there will be potential tax problems with 'dual ownership' where the employer owns the new bits and the employee owns the rest. 

 

So... Dont delay ask for a quote from us today