How can businesses apply for the Cycle to Work scheme as an employer?
Encouraging employees to choose a healthier and more environmentally-friendly alternative to driving to work is much easier with help from the UK government's Cycle to Work scheme. The scheme, which was first introduced as part of the Finance Act 1999, is a tax exemption initiative that benefits both employees and employers with a range of money-saving advantages.
Read on to learn more about how to apply for the cycle to work scheme as an employer and the benefits of doing.
What is the Cycle to Work scheme?
The UK government's Cycle to Work scheme is a salary sacrifice initiative that allows employees to hire bicycles and accessories (such as helmets) from their employers for the primary purpose of commuting to work. As a salary sacrifice scheme, employees agree to forgo part of their gross salary in exchange for the bike and accessories.
Multiple providers offer Cycle to Work initiatives for employers to register with. However, the general process remains the same across every provider and scheme:
- Employers purchase bicycles and cycle safety equipment on behalf of their employees. The bicycle and accessories are then loaned to eligible employees.
- The employee in question pays for the loan in monthly instalments. The payments are taken from their salary before tax and National Insurance are applied.
- At the end of the contract, the employee can decide to purchase the bike at its fair market value.
How does the Cycle to Work scheme benefit employees?
For employees, the Cycle to Work scheme offers a simple and cost-effective way to purchase a bike and any cycling accessories they need. By hiring the bicycle from their employer, employees can spread the cost of the bike across monthly instalments and save money on the total cost of the equipment with reduced income tax and National Insurance payments.
In addition to the tax exemption benefits of the Cycle to Work scheme, employees can also take advantage of the benefits of owning a bike. These include adopting a healthier lifestyle, choosing a cheaper (and potentially quicker) commute to work, and avoiding the stress of traffic congestion issues.
How does the Cycle to Work scheme benefit employers?
For employers, the Cycle to Work scheme offers a great opportunity to make significant savings (up to 13.8% of the value of the bikes and accessories purchased) on Class 1 National Insurance contributions. Under the scheme, employers can also reclaim VAT and apply for corporation tax relief for capital allowances.
Offering the Cycle to Work scheme also helps businesses to reduce their carbon emissions, reduce traffic congestion and parking issues on their premises, and encourage employee retention by offering a rewarding tax-free benefit.
Employers can also benefit by encouraging their workforce to swap driving for cycling with the Cycle to Work scheme. By promoting and facilitating healthier commuter habits, employers can reduce illness-related absenteeism and boost employee productivity!
How to apply to the Cycle to Work scheme as an employer
If you are interested in taking advantage of the many benefits of this government initiative, here's how to apply to the Cycle to Work scheme as an employer.
Check your eligibility
First, you need to check whether you are eligible for the scheme. All employers are eligible to apply for the scheme no matter the size of their company or the sector they work in.
You can offer the scheme to full and part-time employees, as long as they pay taxes through a PAYE system. Employees must also be over 18 years of age and must earn more than minimum wage (after the monthly bicycle loan payments have been deducted) to benefit from the initiative.
Directors and sole employees of limited companies can also benefit from the Cycle to Work scheme, as long as they meet the criteria listed above.
Find a Cycle to Work scheme provider
Although the Cycle to Work tax benefits are offered by the UK government, you will need to apply to the scheme via an FCA-regulated provider. The scheme is free to enter and you will not need to gain authorisation from HMRC.
Once you have chosen a reliable Cycle to Work scheme provider, all eligible employees will have the chance to enter into a consumer hire agreement with them. Generally, the available contracts will vary from 12-18 months. The contract will be paid for by the employees' salary sacrifice deductions, which your chosen scheme provider will help you set up.
You can decide to run your own Cycle to Work scheme but using the services of a scheme provider is often more convenient. A scheme provider will also help you to make sure that the scheme is compliant and that you and your employees are paying the correct amount of tax.
Choose Keith Graham Chartered Accountants for financial services in Hampshire
As chartered accountants with over 20 years of experience, we at Keith Graham Chartered Accountants are here to help your business with tax advice & tax planning, VAT advice, Payroll and much more. Contact us today to find out how we could help your business with accounting and auditing.