How the scheme works
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Using a Cycle to Work scheme, your employer can help you obtain a brand new bike and safety equipment worth up to £ 1,000. You can use a salary sacrifice arrangement to pay for the bike monthly and that means you can save up to 50% of the retail price of bike and equipment. Your employer also gets a tax break to encourage them.
How the tax break works
To qualify for the tax breaks it's necessary to follow the taxman's rules which stated briefly are:
Your employer can loan (in fact hire) you a bike to cycle to work and no tax is payable by you on the value of this benefit in kind. As well as mainly cycling to work you can use the bike for other purposes and there is no requirement for you to keep a record of how the bike is actually used.
You accept a salary sacrifice (salary reduction) for the period of the hire. Because this is a reduction of your salary it reduces the total amount of tax and national insurance contribution you pay.
Your employer can reclaim the VAT content of the bike purchase price and, since VAT isn't payable on salary, they can pass that 17.5% saving on to you.
Together all of this means you obtain a brand new bike for up to 50% less than the retail price. You can see this calculation in the tables on the next page.
Now for the clever bit! The tax rules state that the bike must remain the property of your employer for the period of the hire and that there can't be an automatic right for the ownership to transfer to you at the end of the hire period. If there is, then the tax break for both you and your employer is lost.
However, your employer can decide to sell you the bike after the hire period has ended for a fair market value (usually 3% to 5% of the purchase price). In the case of a bike which cost £ 1,000 including VAT, this would be around £ 25 to £ 42 and you would end up with a top of the range bike costing you up to 50% less than you would pay in a normal bike store!
So you get: a great bike, an excellent way to lose weight and get fit, to save money on commuting, to ignore petrol price rises, the fun of riding the bike and a tax break! Thanks Gordon! (He was chancellor when this benefit was introduced, which probably explains why it's so complicated!)
You can see the figures on the next page.
Cycle to work offers your business substantial tax breaks! Enough to turn £ 1,000 into £ 1,577 in 12 to 18 months.
How much fuel & money will you save? How many calories will you burn? How long will your journey take?
