Cycle To Work Scheme allows you to save huge on new bikes and accessories deducted from your salary periodically.
While the health benefit of cycling is great, getting a bike of your choice without the upfront cost brings convenience.
The flexibility the plans provide through instalment payments without extra interest or tax charges makes it a top consideration for many.
What Is Cycle To Work Scheme?
Cycle To Work Scheme is a benefit programme that will enable you to get a bike and accessories on a lease term through your employer with the option to own it at the end of the hire period.
The repayment amount is taken from your salary before tax, USC, and PRSI are deducted hence, you can save a lot using this scheme to get a new bike and related equipment than paying upfront from your pocket.
It was introduced by the UK Government as part of the Finance Act in 1999 to reduce pollution while promoting healthier commuting.
How Cycle To Work Scheme Works
The process involves you deciding on a bike and letting your employer know of the cost which will then be purchased on your behalf and given to you on a lease.
Many bike shops accept the Cycle To Work Scheme but you must go through a facilitator that works with your employer before you can pick up your preferred bicycle.
You will need to apply to your employer; some have a live portal for handling this or you can go through its partner facilitator but in that case, the employee code will be required. You should check with your HR or benefit unit regarding this.
After your request has been reviewed, the employer will make the payment tallying with the cost you provided in your application to the facilitator or the bike shop depending on their process.
If the payment is made to the scheme facilitator, you will get redemption details that can be used to checkout online or at any supporting offline bike retailers.
Once you get the bike, the monthly instalment will be deducted from your periodic salary payment which can be spread over 12 months or up to 4 years depending on your preference and the length allowed by your employer or the facilitator.
How Ownership Works in Cycle To Work Scheme
Since it is a lease scheme, you are technically hiring the bike received through the programme but there are options at the end of the contract that can be utilised for full ownership.
If you want to keep the bike, a fee is involved but this depends on the ownership option you select, the valuation of the item, and the length of hire.
Before looking at the cost of keeping, it is worth knowing that there are two options to own the bike received through the Cycle To Work Scheme, including:
- Own it later: with this, you need to complete the applicable length specified in your contract before you can exercise the ownership option. Because it is usually longer, it comes with better savings and depending on your facilitator and length, you can save up to 42% when compared to the cost of paying upfront for a new bike
- Own it now: the alternate allows you to exercise the option whenever. This can be within the first year or second, but usually before the end of the contract.
Note that it is not mandatory to pay for full ownership of the bike received through the Cycle To Work Scheme as you can return it to your facilitator at no cost.
What is the cost of ownership?
To understand how much it will cost to take ownership of the bike, you need to know how the fair market value works.
The table below given by His Majesty’s Revenue and Customs (HMRC) shows how the valuation of the bike will be determined at the end of the hire period:
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% |
Assuming you have a bike that costs £900 through the scheme, the valuation will be determined using the appropriate percentage in the Cost B column.
An example is if you decide to take full ownership in the 18th-month window, there is a 21% cost to be paid but first, you need to get the fair market value (FMV) which is:
FMV = (cost of order – accessories) – VAT
If the bike costs £900 and you got a helmet at the price of £50, then;
FMV = (£950 – £50) – VAT
FMV = £900 – VAT
VAT is 20% of the difference achieved hence;
FMV = £900 – (£900 * 20%)
FMV = £900 – £180
FMV = £720
With the market value known, the cost of full ownership (FO) can be calculated by referencing the HMRC valuation table above and in the 18th month, you are to pay the equivalence of HMRC Value plus the cost of VAT.
So, FO = HMRC Value + VAT
To get the HMRC Value (HV); FMV * HMRC %
So; HV = £720 * 21%
HV = £151.20
VAT is HV * 20% hence;
VAT = £151.20 *20%
VAT = £30.240
Since FO = HMRC Value + VAT then;
FO= £151.20 + £30.24
FO = £181.44 is the estimated cost you will pay in the 18 months to make the bike fully yours.
Features of Cycle To Work Scheme
Below are some of the things that apply to using the scheme to get a new bike:
Available to Employed UK Residents
To be eligible to participate in the Cycle To Work Scheme, you must be employed with your salary through the PAYE system and your take home not below the National Minimum Wage after the periodic repayment amount is deducted.
This means you cannot enjoy this option if you are self-employed or if participating will reduce your take-home below the minimum wage.
In cases where an employee’s take-home falls below the minimum wage due to entering into the Cycle To Work Scheme, the employer has a provision to offer a lower value package, provide a longer-term plan, or give the individual a bike on hire without any salary sacrifice.
If you do not meet this requirement, consider alternatives offered by many of the buy now pay later services as you may qualify for interest-free financing too.
Your Employer Needs to Offer It
It is optional for companies to join the scheme and employees will only be able to participate if the employer offers the option as part of its benefits programme.
If the company you work for supports this, there is usually a scheme code provided by its partner and required during the application process.
You can ask your colleagues, HR, or benefit team regarding their process as it differs per employer.
There Is No Generic Limit to How Much to Spend
There is no cost limit to the bike you can purchase through the Cycle To Work Scheme, previously capped at £1,000 until June 2019.
However, employers have their own rules and can have a maximum limit in place. If the company you work for has a facilitator that practices the open limit option, you can purchase any bike of your choice, be it electric or conventional at any cost.
Interest-Free Long-term Option
The Cycle To Work Scheme is 100% interest-free, making it a great way to get a good bike from top retailers that accept it at checkout.
Considering that the payments can be spread over a long term, some going as much as four years, it comes with convenience.
If purchasing it through a payment plan from one of the financial service providers, you can pay very high interest to enjoy that length of repayment.
Cost Savings
Depending on your take home and how much you pay for tax and insurance, getting a bike through the Cycle To Work Scheme can help you save up to 42% less than purchasing a new one out of pocket during the hire period.
Usually, the repayment amount is taken from your salary before any deduction happens, this means that tax and National Insurance are excluded:
- A basic taxpayer will save 28%: that is 20% in tax and 8% in Insurance
- The highest taxpayer will save 42%: that is 40% in tax and 2% in Insurance
What you will save is based on your category and you can use any of the links below to find more details:
- National Insurance, visit the contribute rates page on GOV.UK
- Income Tax: visit the tax rates and allowances page
Own After the Hire Period
At the end of the Cycle To Work Scheme hire period, you can utilise the ownership option to make the bike fully yours.
This can be anywhere from 12 months and if your employer facilitates the programme through one of the providers, you may get a call once the option is due to discuss the cost of ownership.
Periodic Payment
One of the advantages of the scheme is the convenience it provides through periodic repayment., which could be weekly, bi-weekly, or monthly depending on how your PAYE schedule works.
With this only a small part of your gross salary, the impact will not be felt, especially since tax is excluded from the costs.
Available to Use Online and Offline
While thousands of stores accept the scheme at their physical retail outlets, you can also use it when shopping at many bike shops online.
If the retailer has an online portal with direct support at checkout to use the redemption details, it can be more convenient since you can get the order delivered to your address without hassle.
However, some require you to send an email with the voucher and other information which can take more days to validate and confirm the order.
Administered Through Facilitators
Most employers work with partners that help them administer the programme with ease.
There are many of them available like Cyclescheme, Halford’s Cycle2Work, Vivup, BikeToWork, and others.
The one you can use depends on your employer’s partnership and the facilitator will usually provide the checkout details once your request is approved.
Tax Benefits may be Forfeited in Case of Theft or Damage
If you lost your bike to theft or it is irreparable due to heavy damage, you will lose the tax and NIC benefits unless you replace it.
Where it is not replaced, the hire will come to an end and the outstanding will be deducted from your net salary without excluding Income Tax and National Insurance Contribution.
To stay safe, it is better to purchase insurance as many providers have packages for bikes received through the Cycle To Work Scheme programme and this can save you unnecessary accidental costs.
With benefits of huge savings and flexible payments from your salary, using the Cycle To Work Scheme to get the bike you need is a good way to enjoy commuting at a bargain and you should utilise this if your employer provides the option.
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