This week sees National Cycle to Work day, with many getting on their bikes to celebrate today. It is hard to believe that the UK government introduced the Cycle to Work scheme in 1999 with the intention of promoting healthier journeys to work and thus reduce environmental pollution. Now jump to 2022 and the environment is on most people’s minds and in many business strategies much more today.
According to government statistics, the scheme has been used by over 1.6million commuters, working with over 40,000 different employers since its induction. With around 1.1 million companies viewed as employers in 2021, is it time to encourage more employers to offer a cycle to work scheme? Here at AAB we have an evolving and robust environmental strategy, with buy-in from our employees. As part of this strategy, AAB offer its employees several opportunities to help the environment and one of those opportunities is to be a part of the salary sacrifice Cycle to Work scheme.
What is a ‘Cycle to Work’ Scheme?
The Department for Transport has a useful guide to help all businesses understand what is involved and the different options open to employers.
For individuals it can mean cheaper forms of travel, improve health and well-being and depending on the scheme offer tax and National Insurance savings whilst having access to a bicycle that is affordable. For businesses it can mean more people in the town centres/villages and thus increasing footfall to shops and the hospitality sector. In addition, employers offering such schemes could increase their recruitment and retention numbers, an important factor in today’s climate. Usually, these schemes are cost neutral to businesses but there are some considerations required detailed below. Finally, cycling does not produce emissions therefore our environment will also benefit from less cars and therefore less pollution, so better for society.
There are different ways an employer can offer a Cycle to Work scheme such as offering loan schemes or pooled schemes, however by far the most popular are salary sacrifice schemes due to the additional taxation and National Insurance Contribution (NICs) benefits available. Any employer can run a Cycle to Work scheme, however any tax and NICs benefits can only apply to those treated as employees for PAYE tax purposes. If you are self-employed then specialist tax advice should be sought if wanting to use cycles and equipment for business purposes.
Only cycles for active travel can be included in the Cycle to Work scheme along with any cyclist safety equipment. Providing safety equipment is optional but if an employer is providing it then it must conform to the required safety standards.
Whilst there are some employees who cannot benefit from a salary sacrifice scheme for example, by entering a scheme their hourly rate would fall below the National Minimum/Living Wage rules, for many employees having the use of a cycle to travel to work, provided under a Cycle to Work scheme, using salary sacrifice can have significant benefits in respect of Income Tax paid and National Insurance Contributions. Employers will also benefit from NICs savings currently 15.05% and where the Apprenticeship Levy is paid, currently 0.5%. It works by way of an amount of salary foregone, in return for the loan of bicycle, which in turn reduces pay subject to tax and NICs. There must be formal agreements in place with the employees and it must be offered to all employees (other schemes need to be in place where salary sacrifice cannot apply). The guidance states the employee must use the bicycle for travel to work for at least 50% of the time, but there is no limit on the value of the cycle and or safety equipment supplied.
- There might be some restrictions required if a loan for those under 18 years of age.
- As the business needs to offer under salary sacrifice to all employees if many took this up there may be initial cash flow considerations.
- Which scheme and suppliers will you use; you want this to be attractive to all experience level cyclists?
If you would like some help in understanding the benefits of a Cycle to Work scheme, and or would like to investigate salary sacrifice arrangements (applies to pension contributions too), then please contact firstname.lastname@example.org or our Employee Benefits team.