Cycle-to-work schemes allow employers to rent bicycles and associated kit to employees as a tax-free benefit. Or, in effect, to let them buy a bike at a discount, paying in instalments.

The UK Government launched the framework for the UK’s cycle-to-work scheme in 1999 to encourage people to exercise more and to reduce pollution generated by daily commuting.

With tweaks – I’ll get to that later – it’s still running two decades on and is a popular employee perk, with around 1.6 million commuters in the UK using the scheme since its launch.

Employees save money, getting use of a decent bike for around a quarter to a third less than they’d usually pay.

And businesses get to offer a valuable benefit at little cost and even make a saving on National Insurance contributions.

2020: year of the bike?

The coronavirus crisis has unblocked all kinds of changes that might otherwise have taken years to happen.

Empty streets during lockdown, and the inclusion of a bike-ride on the list of approved activities, saw a boom in the popularity of cycling.

High-street bike shop Halfords reported that bike sales had doubled and its share price jumped 17% on 11 May when the Government announced plans to encourage people to keep cycling to work after lockdown.

In Greater Manchester, cycling was up 22% in May and the city invested £5m in removing street furniture and installing new bike lanes. The Mayor of Liverpool also made a similar investment.

They’re temporary measures, in theory, but they’re likely to kick off a longer-term strategy designed to increase cycling and walking in cities in the North West of England in years to come.

The aims of cycle-to-work schemes obviously fit well with this new interest in bikes and cycle infrastructure, although the hottest spring on record may have had something to do with encouraging fair-weather cycling.

On 5 June, Transport Secretary Grant Shapps announced new ‘fix your bike’ vouchers worth £50 and reminded everyone that the cycle-to-work scheme was expanded to include electric bikes in 2019.

I wonder if we might see even more along these lines in the mini-budget due to take place in July.

The benefits of cycle-to-work schemes

Cycle-to-work schemes operate on the basis of ‘salary sacrifice’. In other words, your employee agrees to give up part of their pre-tax salary each month, usually over a 12-month period.

The benefits to you as an employer are obvious.

For one thing, you save on employer National Insurance contributions at 13.8% of the cost of the bike. So, if you buy a £600 bike for an employee, you’ll reduce your NICs for that individual by £82.80 during the course of the hire period.

Or, to put that another way, every £1,000 you spend on administering the cycle-to-work scheme, you’ll recoup the additional cost plus an extra £138.

Meanwhile, because the cost is deducted from their gross salary before National Insurance and income tax, the employees also save on the cost of the bike and equipment.

Depending on whether they’re a basic-rate or higher-rate taxpayer, that could mean paying between 20% and 40% less overall.

But that’s not all. Having fitter, healthier employees is good for your business, too, because it helps reduce staff absences.

And the more of your team use bikes, the less space your premises needs to have for parking – there can be good savings to be made there, too.

It’s worth remembering that it’s not just bikes – equipment is also covered by these schemes: cycle helmets, reflective clothes, bells, lights, mirrors, shoes, locks and pumps can all be hired along with the cycle itself. Some accessories are excluded – GoPro cameras, for example, and SatNav systems – so do double check.

What’s the catch?

You can’t just wing it.

To benefit from tax exemption, your cycle-to-work scheme has to meet criteria introduced under Section 244 of the Income Tax (Earnings and Pensions) Act 2003.

The easy way around that is to sign up to a recognised scheme provided by a Government-approved third-party such as You, the employer, sign up with them. Then your employee gets the bike via a local supplier, like these ones here in Preston. (Leisure cycling is very big in the Ribble Valley, by the way.)

There are also some conditions that have to be met. First, the employee can’t actually own the cycle during the hire period – they have to be renting it. In legal terms, at any rate.

Then if they want to buy the bike outright at the end of the hire period, they’ll have to pay a fee based on a depreciated valuation of the bike after a year’s use. Of course it might not be deemed to have any value at that point, or just a nominal one.

You also have to be sure that at least half of the bike’s use is for commuting to work. It’s not heavily policed, if I’m honest, but don’t be tempted to let one of your team use the scheme to buy a trail-bike they only ever use on weekends. You don’t want to get caught out.

Finally, you have to make sure you’re offering everyone in the business access to the scheme, although it doesn’t necessarily have to be on the salary sacrifice model across the board.

How to set up a bike loan

First, set up or register with a scheme. If you’re a sizable business with lots of employees, the former might make sense. Otherwise, finding a third-party provider is easiest.

Then get your employee to register with the scheme and choose the bike or equipment they want for commuting.

There used to be a £1,000 limit but not anymore. They can choose any bike and accessories they want, within reason, including e-bikes.

You then pay for it and manage the deductions from their salary via payroll over a minimum of 12 months.

Talk to us about support with payroll and deductions.