Cycle to Work Scheme

What is the 'Cycle to Work' Scheme?

Cycle to Work is a government tax incentive that employers can offer to their employees. It gives employees huge discounts on purchases of new bicycles and equipment, and the employers get some financial benefits as well. The purpose of the scheme is to get people riding bikes for at least part of their journey to and from work, reducing pollution and greenhouse gases and improving health and fitness.

How Does it Work?

  • The employer sets up the scheme and announces it to employees.
  • Employees who wish to take part choose a bike (and associated equipment).
  • The employer buys the bike, and reclaims VAT.
  • The employer leases the bike to the employee over a period of time, usually 12-18 months.
  • The employee pays for this through a reduction in salary, eventually paying the full amount over the lease period.
  • With salary reduced, the employee saves income tax and national insurance contributions. The employer also saves on national insurance contributions.
  • At the end of the lease period, the employer sells the bike to the employee for a defined second hand value of up to 25% of the new value, according to its age.

Savings for the employee, and return on investment for the employer, vary according to the cost of the bike, the employee’s tax situation, and the length of the lease period, but generally the employee saves around 40% of the price of the bike, while the employer earns around 20%, on top of the full repayment of the initial outlay.

In addition, there are other benefits:

  • Fitter, healthier employees
  • More reliable journey times
  • Increased employee loyalty
  • Less parking space required
  • Bulk discounts on bikes can be a further source of profit or employee benefit
  • Social and environmental benefits
  • Can be part of company’s travel plan

For the official Department for Transport implementation guidance, see the Department for Transport web site.  Further information is also available at Directgov.

How Do I Implement the Scheme?

As with any tax scheme, there is some administration involved. There are many companies that will handle the details for you, called third party facilitators (TPFs). Questions to ask when you are choosing a TPF to work with include:

  • How much do they charge? (Many TPFs charge little or nothing; they make their money by getting bulk discounts on the bikes).
  • What range of cycles will be available? Does this include electrically assisted bikes?
  • Do they provide additional services, such as maintenance or training?
  • How much help do they provide publicising and explaining the scheme to your employees?
  • Do they provide try-out days?

A partial list of these companies is available on the Bikehub website, under the heading 'Facilitators'.

Alternatively, you can handle it in-house. We will be producing a step-by-step guide, but in the meantime, there are contracts available online that can be used as a guide, such as these.

What Are the Limitations?

The scheme covers bicycles (and electrically assisted pedal cycles), and cyclists’ safety equipment. This is commonly interpreted as including helmets, bells, horns, lights, reflectors, mirrors, mudguards, racks, panniers, straps, clips, locks, chains, pumps, puncture kits, tools, and reflective clothing.

The bike should be used for at least part of the journey to/from work, for some part of the year. This obviously excludes employees who work from home or who live and work in the same building.

The salary sacrifice cannot reduce the employee’s wage to less than the minimum wage. The employee should also be made aware of any impacts of the salary sacrifice on pension schemes (particularly final-salary schemes) and the effect of reduced national insurance payments on entitlements to state benefits and pensions.

Legally, there can be no written commitment that the company will sell the bike to the employee at the end of the lease period, as this would constitute a hire purchase agreement.

How can the Chesterfield Cycle Campaign Help?

Chesterfield Cycle Campaign (CCC) is a voluntary organisation working to increase ridership, and has no financial interest in any equipment or service provider. We can give advice, and point you to available information. We may be able to put you in touch with companies that have implemented the scheme, and assist you in publicising your scheme through local media.

For more information, please contact our Cycle to Work Co-ordinator, Bill Leverett: cycletowork@chesterfieldcc.org.uk.

Any information provided by the CCC is produced in good faith based on information available at the time of publication.  Companies should always check original sources and/or seek competent professional advice before implementing any tax scheme.

March 2008.