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Buying a Bike – Tax Free

 

 

Buying a Bike – Cycle to Work Scheme

The ‘Cycle to Work’ scheme is a government backed tax incentive to get more employees to cycle to work by allowing them to buy a bike and equipment through a company salary sacrifice arrangement. This results in big savings for the employee on the price of a bike (typically 30 to 40% but can be up to 50%), see example below.

How does it work.

The employer will buy a bike (VAT free) of the employees choice and any equipment through a cycle shop and then hire it back to the employee over a period of time. The employee then pays the employer a monthly rental for the bike, usually the price the employer paid divided by the amount months the loan is for. The rental comes out of the gross salary which saves on income tax and national insurance contributions. At the end of the rental period the employee will be able to buy the bike for a fraction of its original cost.

Example:

  1.  Under his employer’s scheme, John chooses to have the loan of a bike retailing at £450.
  2. His employer reclaims the VAT – reducing the cost to £383.
  3. This net amount is met by John agreeing to a salary sacrifice whereby his gross pay is reduced by £21.28 per month over 18 months.
  4. The monthly net cost to John will be £14.26 because he doesn’t pay tax or national insurance on the gross pay (£21.28) that he has sacrificed.
  5. At the end of the 18 month period John’s employers offers the ex-loan bike for sale at a fair market price, say £50.
  6. The cost to John is: Net salary given up £14.26 x 18 months = £256.68. Cost to buy the bike at end of period = £50. Total cost to John = £306.68, a saving of £143 or 32%.

Third Party Facilitators

Third part facilitators sort out a lot of the paperwork for employers making the scheme a bit more friendly to HR and accounts departments. They also offer advice for setting a scheme up.

There are several third party facilitators available, some are tied down to certain shops or manufacturers but cyclescheme.co.uk represents independent cycle dealers and many in the local area e.g. Abingdon, Wantage, Wallingford, Oxford and others. Details of local dealers can be found on the Cyclescheme web site.

For STFC and other Research Councils (except MRC).

If you work for STFC or other research councils then OnYourBike is the third party facilitator that runs the research councils scheme. The Medical Research Council has different arrangements.

Where the catch?

We are dealing with a government scheme which is policed by Her Majesty’s Revenue & Customs so there are bound to be rules. A comprehensive set of FAQs can be found at the Cyclescheme website, which should make everything clear but listed below are a few points worth noting:

  1. Public service employees and charity employees may not be able to get the bike VAT free.
  2. There is no upper limit on the value of the bike that can be purchased but under the Consumer Credit Act an employer will have to apply for a license to offer credit for values above £1000.
  3. The bike must be used as the primary means of transport for commuting to work and the bike purchased must be suitable for commuting. This means that the scheme cannot be used to buy a childrens bike or to buy a bike where the commuting distance is not a reasonable cycling distance. Given the types of routes used to get to the Harwell campus a commuting bike could easily be a mountain bike or racing bike as well as a touring or hybrid (touring/off road) bike. The decision as to whether somebody qualifies for the scheme is down to the individual. The Revenue & Customs could ask for proof of cycle useage and demand payback for the amount of tax avoided if they think that the scheme has been abused and they could also impose a fine.
  4. Equipment can be bought as part of the tax free package this can typically include lights, locks, helmets, safety clothing, panniers and rucksacks. This must all be bought at the same time as the bike in one purchase.
  5. It is advisable to get the bike insured as if it gets stolen the amount still remaining on the loan will still have to be paid back to the company. Home insurance may cover this but it is advisable to check as there may be conditions e.g. cover is only if the bike is stolen from the home.

The following companies are operating a cycle to work scheme on the Harwell Campus:

  • STFC – RAL
  • Research Sites Restoration Limited
  • Nuclear Decommissioning Authority
  • Health Protection Agency
  • UKAEA
  • Nuvia
  • AEA Group