Cycle To Work Scheme has its benefits but with the rise of alternate payment options, is it still worth using to get your bike?
For individuals eligible to access the checkout plans available through the Cycle To Work Scheme, getting the bike you need through a salary sacrifice may be more convenient than paying upfront.
While it has been helpful through its flexible instalment payments for new bikes, the growth of alternatives available like buy now pay later services lets you compare and see which is better for purchases.
Why Cycle To Work Scheme?
The programme aims to encourage people to ride bikes to work instead of driving, reducing pollution due to automobile usage and directly helping individuals to exercise while commuting.
It has been in existence since 1999 and it is only available to use if your employer is a participant hence, self-employed do not have access to this.
Benefits of Cycle To Work Scheme
Some of the obvious benefits of the programme include:
Save up to 42% on new bikes
It is a government initiative and to encourage participation, the programme comes with tax-waiver benefits.
Your salary calculations involve the deduction of Income Tax (between 20% to 40%) and National Insurance Contribution (between 2% to 8%) which varies depending on your take home.
An average earner whose annual income is within £37,700 usually pays 20% in Income Tax and 8% in National Insurance. A higher-earning employee with a salary of up to £150,000 pays 40% in Income Tax and contributes 2% in National Insurance.
When you get a bike through the scheme, the repayment amount is exempted from these taxes and depending on your band, you will save between 28% to 42% during the hire period compared to buying out of pocket.
To illustrate, if your monthly allowance is £4,500 and you own a bike received through the Cycle To Work Scheme that requires you to pay £150 every month, only £4,350 will be taxed because your bike payment will be taken before taxes are deducted.
The links below are to government pages and you can learn more about how taxation works:
- National Insurance, see the contribution rates page on GOV.UK
- Income Tax: visit the tax rates and allowances page
No interest involved
One of the benefits of the programme is that despite the good discount considering tax exemption, you will enjoy it without paying interest.
When you compare that to using your credit card or other financing options to purchase a new bike, you can save a lot by going through the scheme if your employer provides it.
Long-term or short-term, the choice is yours
The hire period is time-bound and can be from a minimum of 12 months and depending on the facilitator and your employer, it can be up to 4 years or more.
During or after the hire period, you have the freedom to close the contract at any point and exercise any of the ownership options or return it.
When and how is within your control and if you want to keep the bike and make it 100% yours, you can pay the needed fees to bring the hire to an end which will stop the monthly deductions from your salary.
Buy any bike of your choice
Before now, the Cycle To Work Scheme had a maximum purchase limit of £1,000 and individuals were forced to stay within this amount when searching for a bicycle to purchase.
Since June 2019, this limit has been removed and because many of the top facilitators are now regulated by the Financial Conduct Authority, you can select any bike of your choice at any amount, be it electric or conventional if your employer does not have any internal limit rules.
Become a full owner at a small fee
At the end of the Cycle To Work Scheme, you do not automatically become the owner because the cost of ownership is required to keep it after the hire period.
The good thing is the required amount is still less than buying a new bike outside the programme.
How much you will pay depends on the stage you decide to exercise the option and the fee could be from 3% to 25% of the original cost (of the bike).
The final validation is determined by referencing the HMRC (His Majesty’s Revenue and Customs) table which is given below:
|
Length
|
Cost A (bike within £500)
|
Cost B (bike above £500)
|
|
12 months
|
18%
|
25%
|
|
18 months
|
16%
|
21%
|
|
24 months
|
13%
|
17%
|
|
36 months
|
8%
|
12%
|
|
48 months
|
3%
|
7%
|
For example: assuming you got a bike through the scheme which costs £1,500 and you decide to close the contract within the 24th month to make it 100% yours and stop the monthly deductions from your salary:
You will pay 13% of £1,500, which is £195 and since VAT (20%) will be considered, the total payable for ownership will be £195+£39, totalling £234 (estimated).
Small-bit instalment from salary
The flexibility it provides is one of the top advantages and since this is taken from your salary before tax, you end up saving while enjoying convenient instalments.
This plan can go as long as 4 years and some employers offer longer term. If you get the option to spread the payments for several years, the monthly payments will not have much impact.
You can use it online or at physical outlets
The scheme is accepted by several merchants, including those operating online and at their physical retail locations.
There is a high chance many bike shops around you support the option to checkout with a Cycle To Work Scheme voucher which provides convenience and quick pick-up advantage.
Downsides of Cycle To Work Scheme
Despite its several advantages, the scheme still has its downsides including:
Your employer needs to be a participant
You will not be able to get bikes through the Cycle To Work Scheme if the company you work for does not participate in the programme.
However, it is easy for your employer to sign up with any of the facilitators. It is free and does not take time to complete registration, you can let your HR or benefit unit know of your interest to enable you to get a bike through the scheme.
Self-employed not eligible
If you are self-employed, you will not be able to participate in the Cycle To Work Scheme because your employer is required and also, you must be paid through the PAYE system to be eligible.
In such a case, you will have to utilise one of the alternatives like V12 Finance which is accepted by many bike shops and has one of the best long-term payment plans even though you will not enjoy the tax-free benefit that comes with the scheme.
You may not be allowed if it will reduce take-home below minimum wage
If your participation in the programme will reduce your take-home salary below the national minimum wage, you may be considered ineligible.
However, the Department of Transport’s guidance on the scheme recommends employers to:
- Provides a low-value package
- Offer a longer hire period
- Consider hiring a cycle to the employee without a salary sacrifice
where an individual’s participation will reduce his take-home below the minimum wage.
You may miss out on special promotions
To utilise the option for bike purchases, you first need approval from your employer.
Depending on the internal process, this can take hours to days from applying, reviewing, and providing the details needed for checkout.
During special promotions and time-bound discount offers, you may miss out before such runs out due to the process involved in using the Cycle To Work Scheme.
Also, many of the online bike shops do not directly accept all the providers on their websites and require you to send redemption details to a designated email address if you want to use the scheme. In this instance, you can miss out on cashback and other discount promotional offers.
At least 50% of rides must be for work purposes
While the scheme allows you to use the bike for personal rides, at least 50% of that should be for work purposes.
When using the bike received through the program, stay within this rule to avoid any penalty for violation.
A fee for ownership is required
While this may be an advantage if you pay just a small amount to make the bike fully yours, paying the fee could also be seen as a downside considering the age of the bicycle at the end of the hire period.
With this transfer of ownership fee charged by some providers, your total savings through the scheme is reduced and this can be a deficit as high as 25% depending on the cost of the bike.
In a theft case, you may forfeit tax benefits
You may lose the benefits enjoyed through the scheme if your bike is stolen or damaged with no hope of repair.
Where such happens, you will need to replace the bike and continue enjoying the benefits otherwise, the contract will conclude with the outstanding payments taken from your net pay (together with tax and NIC).
There are many insurance providers for the Cycle To Work Scheme. To protect yourself against such unforeseen circumstances, getting a plan from one of these providers is recommended.
Is Cycle To Work Scheme Still Worth It?
When you consider the overall benefits of the Cycle To Work Scheme, it outweighs its downsides. Hence, making it worth using to get the bike you need.
With savings between 28% to 42% depending on your tax rates, option for ownership at the end of the hire period, and flexibility through periodic deduction from your salary, it is better to use the Cycle To Work Scheme to get a new bike if you are eligible than paying out of pocket.
However, follow the rules and get insurance to be protected against future damage or loss during and after the hire period.
With several bike shops supporting checkout with the Cycle To Work Scheme redemption details, getting your preferred bicycle should be hassle-free.
If you are not eligible due to being self-employed or your salary below the minimum wage, consider alternatives or work with your employer for a low-value package.
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