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To promote healthier journeys to work and to reduce environmental pollution, the 1999 Finance Act introduced an annual tax exemption, which allows employers to loan cycles and cyclists' safety equipment to employees as a tax-free benefit. The exemption, known as the Cycle to Work Scheme was one of a series of measures introduced under the Government's Green Transport Plan.
Administration of this scheme can be carried out by your employer or by one of the many companies that offer to act as administrator, the biggest being Cyclescheme. Corley Cycles are registered with Cyclescheme, the Bike2Work scheme, Cycle Plus and Bikes for the NHS. We will issue you with a quotation in store, at this point you will be given the option of leaving a deposit to secure the goods you desire. Then you submit your quotation to the Cycle to Work scheme your employer is registered with. Once confirmed by your employer you will receive a voucher which you then exchange for the goods.
WHAT'S THE PROCESS OF GETTING A TAX FREE BIKE FOR WORK?
• Step 1. Your employer needs to be registered with one of the above Cycle to Work schemes. They can find out how to do this from information on one of the Cycle to Work Scheme websites (see above).
• Step 2. Visit Corley Cycles, choose the bike and any safety equipment and get a quotation. Leave a small refundable deposit to secure your goods for once the voucher has been issued
• Step 3. You apply for a Certificate online using the relevant Cycle to Work Scheme website. Your employee will usually sign an online Hire Agreement at this time.
• Step 4. Once approved, a Certificate will be issued to either your employer or directly to you, whichever is requested.
• Step 5. The Certificate is then redeemed at Corley Cycles in exchange for the goods you reserved. Salary sacrifice then commences over the hire period
• Step 6. At the end of the hire period the owner of the bike and goods will offer you a choice, either to hire the bike for another 36months where a one of payment is made to continue with the hire agreement (normally 3% or 7% of the value of the bike dependant on the full market value). Or you can transfer ownership from the employer to yourself for a one of payment (normally 18% or 25% dependant on value). Or you can decide that you don’t want to keep the bike and let the employer keep the bike.
Please note that although the above procedure applies to the vast majority of schemes there are some variations which are a result of the way an employer’s scheme is set up, typical examples would be if they are using a finance company (see below) or a benefits provider.
WHO CAN PARTICIPATE IN THE SCHEME?
There is no minimum or maximum company size necessary to sign up to the scheme. Eligible employees must: be paying PAYE, earn more than the National Minimum Wage after salary sacrifice, and have a contract that does not end during the hire period. Employees who earn close to the National Minimum Wage following salary sacrifice may wish to discuss with their employer the option of loan or pool bikes. There is no credit check for employees wishing to participate. Under 18s can join the scheme if their parent/guardian signs a guarantor agreement.
WHAT IS SALARY SACRIFICE AND HOW ARE SAVINGS MADE?
Salary sacrifice occurs when an employee agrees to give up part of their salary for an agreed period (in the case of the Cycle to Work scheme this is usually 12 months) in exchange for some kind of non-cash benefit, such as the loan of a bicycle and safety equipment, As salary sacrifice is taken from the gross salary (before tax) rather than net pay it means the employee pays less income tax and National Insurance. Employers that can reclaim VAT usually pass this saving on to their employees, which increases savings further. Employers also save on Secondary Class NICs (usually around 12.8%) as the amount they’re paying in wages is also lower. See www.hmrc.gov.uk/specialist/salary_sacrifice.pdf for a more detailed explanation.
WHAT ARE THE SAVINGS?
Typical savings are between 40% and 50%, but the actual amount depends on the employee's personal tax band and the way the employer runs their scheme. Higher rate taxpayers will save more, employees whose company cannot reclaim VAT (the NHS, for example) will save less. If the employer uses external finance (ie, borrows the money to buy the bikes from an outside agent) then savings will be approximately 5% lower.
WHAT BIKES ARE AVAILABLE?
Employees can choose any bike - including folding bikes and other specialist cycles. If the employer wants to supply bikes costing over £1000 (retail price including VAT) they will need to purchase an individual Consumer Credit Licence, so many employers limit the package value to £1000 including VAT. Please note that obtaining bikes for friends and family is not permitted; the bike must be for the employee.
WHO ACTUALLY OWNS THE BIKE?
The bike and related goods remain the property of the employer throughout the hire period, unless the employer uses a finance company to fund the bikes; in this case the finance company or funding bank will own the bikes.
WHO IS RESPONSIBLE FOR MAINTAINING THE BIKE AND WHAT HAPPENS IF IT IS STOLEN?
It is the employee's responsibility to maintain the bike. Corley Cycles will be able to advise about maintenance and servicing depending on how the bike is used - don't forget we do offer a free first service. If the bike is stolen the employee will be liable for any outstanding monies without any tax exemptions, so it's very important that employees insure the bikes. Safety equipment including Home Office-approved 'Sold Secure' D-locks and cable locks can be obtained as part of the scheme.
WHAT'S THE BEST WAY TO INSURE THE BIKE?
Household policies are usually the cheapest option but employees must ensure that the insurer covers the bike when in storage away from your home, and that the bike's value doesn't exceed the upper claim limit. If the bike can't be covered on a home insurance policy, we recommend Cycleguard (www.cycleguard.co.uk) for insurance (they offer Cyclescheme customers a 10% discount).
DOES THE BIKE HAVE TO BE USED FOR COMMUTING?
Employees should use the bike mainly for commuting to and, if relevant, between work places (at least 50% of the bike’s use should be for work purposes). However, the bike can also be used for non-work purposes and there is no need for employers to monitor individual usage or for employees to keep a mileage log. Please note that employees can not claim business mileage allowance with a bike obtained under the scheme as the bike belongs to the employer.
WHAT HAPPENS IF AN EMPLOYEE LEAVES THEIR JOB OR IS MADE REDUNDANT?
Once signed, the Hire Agreement is non-cancellable following a cooling-off period of seven (7) working days following collection of the goods. This means that if an employee leaves or is made redundant from their employment during the hire period they are obliged to pay the remaining salary sacrifice amount in full from net pay i.e. without any tax exemptions.
For further information please see the Department for Transport's Cycle to Work implementation guide.