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 scheme enables employers to fund bikes and safety equipment, and loan these to employees.
Where can employers find more information?
Additional information can be found on the Cycle to Work Alliance’s website: www.cycletoworkalliance.org.uk.
Who are the main providers?
These include: Connected Benefits, Co-operative Flexible Benefits, Cycle Solutions, Cycle Surgery, Edenred, Evans Cycles, Grass Roots, Halfords, Hargroves Cycles, and P&MM Employee Benefits.
Bikes-for-work schemes generate at least £72 million for the UK economy and employers through improved physical fitness and associated health benefits. According to the Impact of the cycle-to-work scheme: evidence report, published in June 2016, by the Institute for Employment Studies (IES) on behalf of the Cycle to Work Alliance, bikes-for-work schemes generate around 9,200 new cyclists every year. The report also indicated that users of the scheme cycled an average of 18 more miles per week after taking up the benefit.
A bikes-for-work scheme is a tax-efficient benefit, which is 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.
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.
The consumer credit agreement allows organisations to lease bikes and safety equipment up to the value of £1,000, including value-added tax (VAT).
Under the scheme’s rules, 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 it must be accounted for on the monthly amounts paid by staff, because the scheme is regarded as supply of a service.
The health and environmental benefits of bikes-for-work schemes were recognised by the government in the 2016 Autumn Statement. In November 2016, Chancellor Philip Hammond confirmed that cuts in employee tax breaks through salary sacrifice would not include any changes to the bikes-for-work scheme.
London Mayor Sadiq Khan also announced he would spend an annual £154 million on cycling in London over the next five years. In December 2016, Khan said that the cash injection into cycling is to help Londoners get about quickly without having to use a car, bringing both health benefits and continuing his policies for improving air quality. Now reaching a total of £770 million, the amount nearly doubles the £79 million per year spent over the last mayoral term, which places London roughly level with the Netherlands in terms of money spent on cycling.
- Bikes-for-work schemes generate at least £72 million for the UK economy and employers through improved physical fitness and associated health benefits.
- Bikes-for-work schemes generate around 9,200 new cyclists every year.
(Source: Institute for Employment Studies on behalf of the Cycle to Work Alliance, June 2016)