Cyclescheme is the leading provider of the Cycle to Work Scheme, a government initiative to encourage cycle commuting and thereby improve public health and reduce pollution. The encouragement is financial: you don’t pay income tax or National Insurance (NI) on your new bike and accessories, which saves upwards of 25% on the overall price.
Essentially, your employer buys the bike and equipment package for you, and you pay them back in monthly instalments that are deducted from your gross salary. That’s where the savings come from. Your gross salary is your pay before income tax and NI are deducted. So the bike and accessories are exempt from tax and NI. Less money for the taxman, more money for you.
Your employer benefits too, and not just because cycle commuters are healthier, more punctual employees. Your employer doesn’t have to pay Employers’ National Insurance Contributions on your bike-and-accessories payments for the same reason you don’t: because they’re taken from your gross salary. Effectively, you’re reducing your gross salary by the cost of the bike and accessories, which is why the process is known as salary sacrifice. Everyone’s a winner – well, apart from the taxman. But society as a whole benefits from you being on a bike, through less pollution, less congestion, and a reduction in inactivity-related health problems.
Am I eligible?
To get a bike and/or accessories through Cyclescheme, your employer needs to be enrolled in the scheme. If they’re not, invite them; it only takes a few moments. You normally need to be earning a little more than the minimum wage to take part, as the minimum wage rules apply after any salary sacrifice payments have been deducted. But do check with your employer. If you’re self-employed, you can sign up your own company so long as you pay yourself through PAYE.
Cyclescheme step by step
Getting a bike, accessories, or both through Cyclescheme is easy. There are just three steps.
1. Pick your package and apply
Your Cyclescheme package can be a bike, a bike plus accessories, or just accessories. You can choose any pedal cycle that you could ride to work on, and that a Cyclescheme retailer stocks. Accessories are things like lights, luggage, locks, mudguards, and cycle clothing – extras that make your journey safer or more practical. The normal limit for a Cyclescheme package, whether that’s a bike, accessories, or both, is £1,000. There’s no minimum spend for bikes or accessories. The simplest way to work out how much you’ll be spending is to visit a Cyclescheme retailer and draw up a shopping list. But you can apply for a package of a certain value, then decide where and what to spend it on. (Have a look at Cyclescheme’s special offers if you’re after a bargain.) Once you know how much you want to spend, you make an application. It takes about 10 minutes and can be done online. You’ll need your Cyclescheme employer code and your payroll number, both of which your employer can provide.
2. Get your gear
Before you can get your gear, your employer has to review and approve your application, then pay for your Cyclescheme package. This is normally a formality, so long as you don’t miss your employer’s deadline for applications. (Check with your human resources manager for this.) As soon as the package is paid for, you’ll receive an eCertificate from Cyclescheme. You exchange this for your bike and/or accessories, either in store or online. For the next 12 months, a twelfth of the package’s value will be deducted from your gross salary. During this period, the bike/accessories belong to your employer. You’re hiring them.
3. Choose an ownership option
At the end of the year, you stop making monthly payments. You’ve then got a choice: return the bike/accessories to Cyclescheme; choose the ‘own it now’ option and make an immediate payment to transfer ownership to you; or choose the ‘own it later’ option, under which you make a small, refundable deposit, continue to ‘hire’ the bike from your employer for the next three years at zero cost, then make a much smaller transfer of ownership payment. The third option is usually best because you keep your bike/accessories and make much bigger savings, as you’ll see…
How much can you save?
The amount you save with Cyclescheme depends on: your salary, and thus the amount of income tax and National Insurance (NI) you pay; the value of your Cyclescheme package; and the time at which you take ownership of the bike/accessories. Let’s assume you’re a standard rate taxpayer: you pay income tax at 20% and NI at 12%, so that’s 32%. Let’s also assume that you’re getting a bike for £1,000.
Here’s what happens for a lower rate tax-payer (higher rate tax-payers save more):
Your employer pays £1,000 for the bike. For the next 12 months, £83.33 (that is, £1,000 divided by 12) is deducted from your monthly salary – your monthly gross salary. In terms of your net salary, it’s costing you only £56.67 per month because you’re saving 32% of that £83.33 (i.e. £26.66), which you would have paid in tax and National Insurance had that £83.33 been destined for your pay packet. After a year, your employer has recouped £1,000 but you’ve paid only £680 from your net salary – a saving of 32%.
So far, so fantastic. If you take the ‘own it now’ option to transfer ownership after the initial 12 months are up, you pay 25% of the bike’s value (for bikes/packages under £500, it’s 18%). That’s £250, so the £1,000 bike would cost you £930 (£680 plus £250). Not bad. But if you defer taking ownership for another three years, you’ll pay only 7% to transfer ownership (or 3% for packages under £500). That’s only £70 for a £1,000 bike, making the total cost £750 (£680 plus £70). You’ve just saved £250!
To see how much you could save in different scenarios, use Cyclescheme’s online calculator.
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