Cycle-to-work schemes give employees of participating employers the chance to acquire a bike at a discount – thanks largely to salary sacrifice.
If you, as an employee, decide to take advantage of a cycle-to-work scheme offered by your employer you will be able to give up part of your gross salary to pay for the loan of the bike for an agreed period of up to 18 months.
Basically, salary sacrifice involves the employee giving up part of his/her gross salary to pay for a benefit. That part is not subject to income tax or national insurance contributions (NICs). Nor does the employer pay NICs on the sum sacrificed by the employee.
For example, if it is assumed that the employee is loaned a bike worth £500 over a period of 18 months, they could sacrifice £6.41 per week from their gross salary. Net of tax and NICs this would be £4.42 for a basic rate taxpayer (20% income tax plus 11% NICs) and £3.78 for a higher rate taxpayer (40% income tax plus 1% employee NICs).
This generates considerable savings for an employee. During the loan period, the employer owns the bike. At the end of it, the bike will be offered for sale to the employee concerned at a fair market value. Cycle-to-work scheme providers will be able to provide this information, or you can check online auctions for the going price. It is unlikely to amount to much.
Some cycling kit, such as a helmet, high-visibility clothing and panniers may also be included in a cycle-to-work scheme package.
If your employer is offering a cycle-to-work scheme and has signed up to the Department of Transport’s cycle-to-work initiative then they have made a commitment to offer secure storage and parking facilities for employees’ bikes plus shower and changing facilities.
They will also almost certainly use a third-party supplier or a benefits provider. They will have websites that will provide all the information you need to know about their cycle-to-work offerings.
If you decide to participate in a cycle-to-work scheme then you will have to sign an agreement with your employer that is regulated by the Consumer Credit Act. This is designed to protect your rights.
If you are under 18 then you may be able to join a cycle-to-work scheme as long as your parent or guardian countersigns the agreement. If you are on or near the national minimum wage (NMW) – currently £5.80 per hour – then cycle-to-work schemes may well not be appropriate as salary sacrifice means your employer will be in breach of NMW regulations.
If you are nearing retirement age and are in a final salary pension, then salary sacrifice is probably inappropriate.