An increasing number of employers are pushing pedal power to employees. Yet much thought must go into cycle-to-work schemes as there are pot holes for the unwary, as Tara Craig reports.
Cycling to work: it’s cheap, healthy, and environmentally friendly. But schemes can be a pain to administer. The genesis of cycle-to-work programmes lies in the government’s Green Transport Plan, which, through the 1999 Finance Act, introduced an annual tax exemption, allowing employers to loan bikes and cycling equipment to staff as a tax-free benefit. Bicycle equipment – from helmets to cycle clips – is included in the exemption.
The tax exemption applies only when an employee uses the bike and equipment primarily for travelling to and from work. And the scheme must be offered to all employees, regardless of seniority, and ownership of the equipment must not be transferred to the employee during the loan period.
An increasing number of employers offer cycle-to-work schemes. In the past 12 months, for example, more than 2,000 London Fire Brigade employees have enrolled on a scheme provided by Cycle Solutions, a take-up rate of 30%. The benefits for employers are obvious – healthier staff, less sickness absence, increased loyalty and good corporate social responsibility practice.
But what of the downside? Some employers are put off by the paperwork, perhaps seeing it as extra, unnecessary, administration at a time when reward and benefits departments may be shrinking. Others say that HM Revenue and Customs (HMRC) rules are too stringent for existing HR and payroll systems to administer. There are also the complications where salary sacrifice (where an employee gives up part of their salary in exchange for a benefit – in this case, a bicycle loan) is involved.
The Department for Transport (DfT) says: “For a salary sacrifice to be effective for tax and national insurance (NI) purposes, the potential future remuneration must be given up before it is treated as received for tax and NI purposes.”
It goes on to say: “The true construction of the revised contractual arrangement between employer and employee must be that the employee is entitled to lower cash remuneration and a benefit in kind.”
In this case, the benefit in kind would be the loan of a bicycle and safety equipment. Crucially, while an employer may lend bicycles and equipment to all employees, a salary sacrifice arrangement cannot be used if it would cause the employee’s gross pay to fall below the national minimum wage.
Employers may also struggle with the notion of “policing” scheme participants to ensure they are using their bicycles for travelling to work.
Paul Bartlett, head of employee benefits and rewards at benefits provider Grass Roots, says ensuring that at least 50% of bike usage is for work is a complex issue. “We approach the issue from a practical perspective, in line with the guidance from HMRC and the DfT, by encouraging employers to provide appropriate facilities, such as cycle racks and showers on site.”
He adds that employees are also required to sign enforceable documents, while other companies may monitor usage via card-controlled access to parking facilities.
Matt Duffy, partnerships manager at benefits provider Lorica, says that communication is key to a successful cycle-to-work scheme. He recommends an online flex platform so that employees can access information on all of their benefits at once. “Employees should be given sufficient time to choose a bike. Giving them three to four weeks to do so will allow them to make an informed choice, and increase uptake of the scheme.”
Heather Baker, project officer at Cycle Exeter, one of 18 Cycling England-funded cycling cities and towns, which include Blackpool, Darlington and York, says: “It’s important that companies let employees know what incentives and facilities are available, and we’ve created an online toolkit to help employers support staff who want to cycle to work. The best thing about these incentives is that they’re applicable to all organisations, large or small. And they’re cost-effective and easy to implement.”
North Lincolnshire County Council implemented a cycle-to-work scheme earlier this year, with the help of benefits provider P&MM.
Councillor Mick Grant, cabinet member for housing and strategic planning, and a keen cyclist, says: “The scheme was marketed internally and although initial take-up was light, it proved popular. The council has continued to promote the benefits of taking part in the scheme – Cycle2work is now established as a key part of our employee benefits offering.” He says having an ongoing strategy to promote the initiative is vital.
But what if scheme participants leave the company? Employers must agree the terms and conditions for such an eventuality before the employee joins the scheme. If an employee leaves while sacrificing their salary for the loan of a bicycle and equipment, the employer may ask them to pay compensation.
According to the DfT, “a deduction from salary or similar charge to staff in compensation for non-completion of salary sacrifice arrangements is outside the scope of VAT. No output tax is due from the employer and the employee is also not required to pay VAT.”
As with so much else, it would seem that the key to a successful cycle-to-work scheme is communication – both before and after employees join.
Where the cost of loaning equipment is offset through a salary sacrifice arrangement, the employer will save Secondary Class 1 NICs (at up to 12.8%) on that part of the employee’s gross salary sacrificed. Therefore, if an employer was to loan a bike worth £500 over 18 months, the employee would sacrifice £500 of gross salary, generating employer’s NIC savings of £64 per employee.
Employers that buy bikes and equipment for loan to employees will be able to treat the cost as capital expenditure, and can claim capital allowances in the normal manner. For example:
- Cost of cycle in year one = £500
- Amount on which capital allowance is due in year one is £500 x 25% = £125
- Amount on which capital allowance is due in year two is £375 x 25% = £93.75
- But employers must be careful when directing low-paid workers to a salary sacrifice scheme as this can have a knock-on effect, which must not take employees below the minimum wage.
Source: The Department for Transport
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