How do you pay for cycle to work scheme bikes and equipment?

Posted by Julie Connor on 06-Jul-2017 11:04:00
Julie Connor

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For employees, deciding whether they want to take advantage of a cycle to work scheme or not is often dependent on what bikes and equipment they can buy. The next thing they typically want to know is how you pay for cycle to work scheme bikes and equipment.

Although the process can, at first, seem complicated, it’s really quite straightforward. An employer buys their employee’s chosen bike or equipment and the employee pays back the money over time in either weekly or monthly instalments by way of a hire agreement. Once the full value has been paid back, ownership of the bike or equipment can be transferred from the employer to the employee.

This approach is called a “salary sacrifice” scheme. Not only does it spread the cost for the employee, but it allows them to save money by paying for the goods out of their gross salary before they’ve been taxed. The employer, meanwhile, also saves money by not paying Secondary Class 1 NICs on the part of the employee’s salary that is sacrificed and by claiming the cost of the bikes or equipment as capital allowances.

For a £600 bike, therefore, an employee could sacrifice £50 a month for a year, or £25 a month for two years, depending on what they agree with their employer. When the agreed loan-term comes to an end, the employer can choose to retain ownership of the bike or to transfer its ownership to the employee. Giving employers this option preserves the tax benefits of the scheme, but the decision is typically made as part of the employer-employee agreement in advance of the hire agreement being signed and employers rarely choose to retain ownership.

Most commonly, the employee is offered the chance to take ownership of the goods at what is called “Fair Market Value.” This is what the bike or equipment is deemed to be worth when yearly depreciation is taken into account. At Bike2Work Scheme, we contact employees to discuss the options available.

The most attractive option for employees will be to pay a small, refundable deposit (3% for packages of less than £500 or 7% for purchases of £500 or more of the goods' value) and continue to use the Bike2Work Scheme package for an extended period of up to 36 months. When this period ends, we refund the deposit if the employee does not wish to keep the goods, with no further action required if they wish to keep them.

Our free guide, 'Choosing a cycle to work scheme: an employer's guide', provides impartial advice on how cycle to work schemes operate, things to consider when choosing a scheme and best practices for setting up a scheme.

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Topics: cycle to work schemes