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The Cycle to Work Scheme

by | Jul 25, 2024 | Business

The Cycle to Work Scheme

The Cycle to Work Scheme

The Cycle to Work scheme helps employees purchase bicycles and equipment through a tax-efficient loan. Employers buy the bikes and lease them to employees through a salary sacrifice arrangement. This means employees pay for the bike in monthly instalments before tax, reducing the overall cost.

How Does the Cycle to Work Scheme Work?

For Employees:

  1. Check Employer Participation: First, ensure your employer is registered with a Cycle to Work scheme provider. If not, suggest they consider it.
  2. Choose Your Bike: Select a bike and accessories (helmet, lock, etc.) from a participating bike shop. HMRC has removed the previous cap of £1,000, allowing employers to set their own limits. This change makes the scheme more flexible, accommodating a wider range of bicycles.
  3. Employer Purchase: Your employer buys the bike and accessories through the scheme provider.
  4. Sign the Hire Agreement: You agree to hire the bike for a set period (usually 12-18 months) and make monthly payments from your pre-tax salary.
  5. End of Lease Options: At the end of the hire period, you can return the bike, extend the hire period, or buy the bike at its market value.

For Employers:

  1. Register with a Provider: Contact a Cycle to Work scheme provider like Cyclescheme, Cycle Solutions, or Halfords Cycle2Work to express interest.
  2. Complete Registration: Fill out and submit the application form provided by the scheme provider. They will check your eligibility and confirm registration.
  3. Setup and Promotion: Follow the instructions from the provider to set up the scheme and promote it to your employees.
  4. Manage Agreements: Handle the hire agreements and salary sacrifice arrangements for participating employees.

Financial Benefits

For Employees:

By paying for the bike through a salary sacrifice arrangement, employees save money on both income tax and National Insurance contributions. Basic-rate taxpayers can save up to 30% of the bike’s cost, while higher-rate taxpayers can save up to 42%​. Additionally, you spread the cost over manageable monthly payments.

For Employers:

Employers benefit financially by saving about 13.8% on employer National Insurance contributions for each participating employee. Moreover, promoting a healthy and eco-friendly mode of commuting can boost staff morale and productivity.

Accounting for the Cycle to Work Scheme

  1. Record the Acquisition: Log the cost of bikes and equipment as an asset under ‘Tangible Fixed Assets’ or ‘Leased Assets,’ with a corresponding credit to cash or accounts payable.
  2. Record the Salary Sacrifice: Reduce the employee’s gross salary expense and record it as lease income.
  3. Depreciate the Bicycles: Depreciate the bikes over their useful life. Record depreciation expense in the profit and loss account and accumulated depreciation on the balance sheet.
  4. End-of-Lease Sale: If an employee buys the bike, remove its net book value from the balance sheet and recognize the sale proceeds as income.

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