A recent revamp of the Cycle To Work Scheme has seen its appeal move up a further gear.
Most things that seem too good to be true usually are. But there is an important exception in the employee benefits space, and new rule changes have made it even more attractive still.
Modern employers are constantly scratching their heads to come up with ideas to improve health and wellbeing as well as initiatives that present them in an environmentally-friendly light. So, they should make sure they don’t overlook an employee benefit that does both, and can in addition cut the costs of commuting to work and offer tax savings of up to 42%.
I am talking about the government’s Cycle To Work Scheme, which allow employees to make significant savings on bikes and equipment. Introduced 20 years ago, it is already used by over half of Chase de Vere’s clients and has involved over 40,000 employers nationwide.
Furthermore, last month cycling minister Michael Ellis announced a revamp of the scheme, making it clear that it can now be possible for employers to offer bikes worth over £1,000. Although there was some confusion around the issue, it was previously widely perceived that usage of the scheme was subject to a £1,000 limit.
This move will, in particular, make it possible for employees in a Cycle To Work Scheme to purchase e-bikes, which often cost over £1,000.
Cycle To Work Schemes enable employees to ‘loan’ a cycle and associated safety equipment from their employer on a tax-free basis with the ability to buy back at a heavily discounted price further down the line.
At the end of the initial hire period employees may have the option of either extending the hire agreement, returning the cycle and equipment, or buying the cycle and equipment under a separate agreement entered into at the time.
But it is important to understand that there must be no option initially – whether express or implied – for the employee to purchase the cycle and equipment at the end of the hire agreement. If there is, it is likely to make it a hire-purchase agreement instead. This would mean different regulatory requirements would apply and it would no longer be eligible for the tax exemption.
Schemes make use of Salary Exchange, whereby the employee agrees to give up part of their pre-tax salary in exchange for the benefit. This means the employee pays less tax and National insurance Contributions (NICs), and the employer is able to save on employer NICs.
To qualify for Salary Exchange, however, certain conditions must be met. Employees must not actually own the cycle at any point during the hire period, at least 50% of the cycle’s use must be for ‘qualifying journeys’ (ie: commuting to work purposes), and usage must be made available across the whole workforce – with no groups of employees excluded.
The latter stipulation could pose problems for workforces with employees on the Minimum Wage, because sacrificing a proportion of their salary would leave them earning less than the legal minimum.
Employers can set up and run their own Salary Exchange schemes or there are Cycle To Work Scheme providers who can run a scheme for them.
Such providers will normally ensure that the scheme is fully compliant with legislation, reduce the complexity involved by handling the administration, advise on technical issues and help the employer promote the scheme to its employees.
Although offering a Cycle To Work Scheme can prove a multiple-win scenario, by saving money for employer and employee, creating a healthier, fitter and more productive workforce and helping to reduce pollution, congestion and global warming, I should end with an important caveat.
Employers are only likely to reap the full benefits of offering a scheme if they can provide suitable facilities to support those who chose to cycle to work. These include secure, safe and accessible cycle parking at the business premises and good quality shower, changing and locker amenities for staff who want them.