Save the Planet , Save Money, Get Fit, Spend Your Bike Voucher at Biketreks!

Cycle to Work is a tax incentive aimed at encouraging employees to, well, 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. With a budget of, say £400, an employee in the high tax-band can now afford a bike, plus accessories, worth nearly £800.

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.

It’s possible for any employer to set up their own Cycle to Work scheme.

So How does it work?

You then choose a bike from an approved supplier, 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, charities and some others may not be able to recover all the VAT.

The discount also varies depending whether cash purchase or lease finance is used.

In rare cases, where employers decide to directly bear all scheme costs themselves, employees need no budgets at all, with the full cost of their loan bikes then legally treated as ‘non cash tax free benefits’. However, although it is at their discretion, most employers do not actually incur the costs themselves. They achieve this by taking advantage of parallel salary sacrifice tax legislation, allowing them to recover all costs from their employees over a period of time, while their employees still substantially benefit from Income Tax and National Insurance reduction in line with salary sacrifice, plus input VAT recovery where possible.

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

1. Under his employer’s scheme, Dave 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 Dave 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 Dave will be £14.26 because he doesn’t pay tax or national insurance on the gross pay (£21.28) that he has sacrificed

5. At the end of the 18 month period Dave’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 Dave 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 Dave is (68% of retail price) = £306.68

So What are you waiting for?