What are bikes-for-work schemes?
Bikes-for-work schemes are tax-exempt arrangements that encourage employees to cycle to work to reduce environmental pollution and promote healthier lifestyles.
The schemes are usually offered via a salary sacrifice arrangement. It was introduced in the 1999 Finance Act to encourage employers to loan bicycles and cycling safety equipment to employees as a tax-exempt benefit to encourage more people to cycle to work. Through the scheme, employers buy cycling equipment from suppliers approved by their scheme administrator, and hire it to their employees. At the end of the loan period, the employer may choose to give the employee the option to purchase the equipment.
What are the cost implications?
The bicycles are lent to staff through a consumer credit agreement, and interest-free repayments to cover the costs are made over 12 or 18 months on a weekly or monthly basis. Employees can also opt to buy related safety equipment such as lights, reflective clothing, helmets and locks.
Initially, the consumer credit agreement allowed organisations to lease bikes and safety equipment up to the value of £1,000, including value-added tax (VAT), but in 2019 the scheme was updated.
Limits are now set by the employer and can be kept at £1,000, £2,000, £5,000 or have no limit.
Are there any potential tax or legal issues?
Government guidelines suggest that at least half of the bike’s usage must be for an employee’s commute to work.
The appeal of bikes-to-work schemes may, in part, lie in the potential national insurance (NI) and tax savings. Employees can decrease their tax and NI liabilities when purchasing a bicycle for their commute using a salary sacrifice arrangement, which typically offers standard-rate taxpayers savings of 32% and higher-rate taxpayers 42%. On average, employers can save 13.8% of the salary employees sacrifice owing to the consequent reduction in their NI contributions.
Employers make initial investments into necessary equipment on the behalf of employees, and a sum is then deducted from employees’ gross pay.
Bikes belong to the employer throughout the process. If the employee leaves their employment, the remaining amount is deducted from their net pay and the bike becomes liable for tax.
At the end of the fixed lease period, the employer can give staff the option to buy their equipment through a transfer of ownership, which uses a fair market value payment set by HM Revenue and Customs (HMRC).
Following changes implemented in 2012 employers can no longer pass VAT savings onto employees, and this must be accounted for on the monthly amounts paid by staff, because the scheme is regarded as supply of a service.
What are the current market trends or developments?
While many businesses are continuining to operate a work-from-home or hybrid-working policy, they face the challenge of encouraging staff to take up a bikes-for-work scheme.
Research published by Sodexo Engage in June 2023 found that 64% of employees have access to a bikes-for-work scheme through their workplace. However, only 25% said they use it, with a further 11% stating that they planned to use it in the future.
Further research published by Blackhawk Network and Sapio in August 2023 found that, on average, cycling to work helps employees to save £1,262 a year on commuting costs, £512 more than in 2022. Almost half (48%) of employees would be more likely to return to the office if their employer offered a bikes-for-work scheme.
Where can employers get more information?
Additional information can be found on the Cycle to Work Alliance’s website: www.cycletoworkalliance.org.uk
Who are the main providers?
Providers include: Blackhawk Network, Cycle Solutions, Edenred, Evans Cycles, Halfords, Hapi, Hargroves Cycles, Sodexo Engage, Reward Gateway and Vivup.
