Cyclescheme are an independent company created to help both employers and employees make the most of the Green Transport Plan Initiative and associated tax concessions offered by the Chancellor.
Cyclescheme use their industry experience and trade contacts to get you riding to work on a bike of your choice from your local preferred bike shop.
Who is entitled to use Cyclescheme?
Under this agreement, employees who have contracts of employment that outlast the duration of the salary sacrifice (pay back) period can benefit from obtaining a tax-free bike and accessories (safety equipment). Employees must be over 18 years old and have exceeded the employer's probationary period (if applicable).
Employees must pay tax via the PAYE system.
Why use Cyclescheme?
Cyclescheme customers are not limited to any particular bike or accessory brand and therefore can choose the best for quality and value-for-money. This results in the best package of bike, accessories and safety equipment.
Cyclescheme work with Employers, under this arrangement, to ensure that Hire Agreement terms and conditions are written in full compliance with the Office of Fair Trading, Her Majesty's Revenue & Customs, Trading Standards and the Department for Transport regulations.
What support will Cyclescheme give when the scheme is running?
Cyclescheme will offer full support for handling your queries, and advice on choice of bike and safety equipment. Our partner shops (the cycle shops in your area who are partnering with your employer and Cyclescheme) will also be your local contact for test riding etc. Once the bike package is purchased these local bike shops will also handle servicing and any warranty issues.
What is a salary sacrifice arrangement and how are savings made?
A salary sacrifice happens when you give up your right to receive part your pay in return for the employer's agreement to provide some form of non-cash benefit, in this case the loan of a bicycle and related equipment. A summary of the advice from the HM Revenue & Customs is available from their website at www.hmrc.gov.uk/specialist/salary_sacrifice.pdf. You are paying back the loan on your goods from gross, rather than net, pay for the hire period - hence allowing you to benefit from income tax and NI relief.
The actual amount of discount appears to be a bit vague - what are the savings?
Typical savings are 43% but the precise amount depends on your personal tax band. An individual being taxed at the higher rate will save a bit more (around 50%) than someone who pays standard rate tax. Some employers cannot reclaim VAT in the normal way so the savings are not as great, the NHS is a good example. In this case expected savings are 33 and 40%. Adding the ability to spread payments over one year still means that great savings are to be made.
It is at the discretion of the employer if they pass on the VAT saving, some employers will retain the VAT to offset any administration costs.
If the employer uses external finance, to buy the bikes, then savings may be around 5% less than quoted above but this is countered as payments are usually spread over 18 months to achieve a better borrowing rate.
Finally, the fair market value payment of around 5% needs to be taken into account to establish the total savings.
Who actually owns the bike?
The bike and goods remain the property of the employer until the hire period finishes.
If your employer buys the bikes using external finance then the finance company will own the bikes during the hire period and not your employer.
Either way, at the end of the hire period you may be given the opportunity to buy the bikes for a fair market value (plus VAT).
Does there need to be a record kept of work mileage?
The Inland Revenue does not expect you to keep a record of mileage. (Please see this PDF for guidelines on bike use.
Can the bike be used for local trips during the day?
Yes, you can use your bike for business purposes during the working day, although you may not claim expenses for business trips made on a bike obtained through this scheme. Employees should ensure they are covered for third party and theft during these trips.
Whose responsibility is it to insure the bike?
Yours, even though you are still paying for your bike through salary sacrifice. When you sign the hire agreement you are agreeing to insure the bike.
You should advise your insurance company that your employer has an iterest in te goods to be insured.
We recommend Cycleguard (02476 851 000) for insurance and the free services provided by Fetch (0870 460 8167). Fetch will expedite their claim and ensure that they are able to replace their bike using the bike shop of their choice.
See our web page for more information on insurance.
What's the best way to insure the bike?
Household policies are usually much cheaper than specialist policies but you must ensure that the insurer covers the bike when in storage away from your home. You also need to check that there's no upper limit on a claim (if you have a reasonably expensive bike). If your bike cannot be covered on your home insurance, we recommend Cycleguard (02476 851 000) for insurance and the free services provided by Fetch (0870 460 8167) who will expedite your claim and ensure that you are able to replace your bike using the bike shop of your choice. Please note that it is your right to decide which shop you use to you replace your stolen bike.
See our web page for more information on insurance.
Can a mileage allowance be claimed for business trips on the bike?
No, since the employer owns the goods you cannot claim mileage when using your Cyclescheme bike until the end of the salary sacrifice period.
What happens when employees want bikes costing over £1000?
Your employer needs to apply for an individual consumer credit licence which costs �£335, last for 5 years and takes around six weeks to come through.
However, if your employer has decided to limit bike sales to �£1000 (retail price including VAT) you can buy safety equipment in excess of this amount and pay the surplus directly to the bike shop who will make the quote out for exactly �1000.
Please note that any excess amount spent on safety equipment is not eligible for tax relief and will fall outside of the salary sacrifice scheme.
What is the fair market value payment?
A fair market value payment is the amount that a willing buyer would pay to a willing seller to purchase certain property at a particular point in time.
Cyclescheme has established a FMV of 5% plus VAT as used on the home computer scheme and other bike to work schemes.
When is the Fair Market Value payment payable?
At the end of the 12/18-month hire period you might be given the opportunity to buy the bike for a fair market value. Cyclescheme have established a fair market value of approximately 5% of the original package price. This payment is subject to 17.5% VAT.
This arrangement cannot be firm otherwise it would constitute a benefit in kind and therefore not be eligible for any tax savings.
Can bikes be procured via a mail order specialist?
Cyclescheme's partner shops are capable of supplying bike packages mail order from their shops, under the government's green travel plan. However, there are distinct advantages when getting a bike from your local bike shop that will be the first port of call for advice, servicing, after sales and warranty. Please note that, because of this deficiency, some mail-order specialists are not part of the Cyclescheme Partner network.
Who is responsible for maintaining the bike?
You are responsible for maintaining the bike for your own use. Your local shop will be able to advise you about necessary servicing depending on how you use your bike. They are also likely to give your bike a first free service once you have bedded it in.
We recommend Cycleguard (02476 851 000) for insurance and the free services provided by Fetch (0870 460 8167). Fetch will expedite their claim and ensure that they are able to replace their bike using the bike shop of their choice.
What happens if an employee leaves the job before they've finished paying for the bike?
Under the terms of the Hire Agreement and the Credit Consumer Act, the agreement to pay your loan is non-cancelable. This means that you will need to settle all outstanding monies before you leave. The outstanding balances will be deducted from your final net salary payment as a termination fee. Settlement will be from net pay because once you leave; you also leave the bike scheme, and are no longer eligible for tax deductions. The termination fee will not exceed a value equal to your outstanding monthly salary reductions.
For early leavers, who wish to keep the bike package, a fair market value payment (to legally transfer the title of goods) equivalent to the fair market value will be payable. The disposal fee to make good and recycle unwanted bike packages is also 5%.
If you pay for the bike package before the hire period has finished and then leave your employer you may have to pay an increased fair market value. The total of the increased fair market value, when added to your salary sacrifice payments already made, should not exceed the retail price of the bike package.
How will salary sacrifice affect out of hours payments paid on top of salary?
In calculating all other payments to you such as out of hours payments, your total unreduced pay will be used.
What happens when there is a pay award?
You will receive any relevant pay awards based on your unreduced salary.
How will salary sacrifice affect pensions?
The scheme may affect your pension but this depends on your particular pension scheme. If your employer's contribution to your pension scheme is proportional to your gross earnings, these will be reduced by a salary sacrifice. It is important for you to check this out with the department which deals with pensions.
- Local Government Pension Scheme: if you contribute to LGPS your pension will not be affected as your gross salary, before salary sacrifice, is the amount that is pensionable.
- Teachers Pension Scheme: if you are within four years of your intended retirement date, you need to be aware that your pension could be affected, as the pension calculation will be made on your salary after salary sacrifice. If you are more than four years from retirement, your pension should not be affected.
- Additional Voluntary Contributions (AVCs): if you have elected to pay AVCs these could be affected by participation in this offer. You should speak to the administrator of your AVC scheme.
NB: It is likely that salary sacrifice arrangements may have only a minimal effect on the payments/benefits described above
How will salary sacrifice affect approved unpaid leave?
During approved unpaid leave such as extended maternity leave or career break, up to a maximum of six months, the Hire Agreement period may be extended by the number of months when the salary was not paid and your employer was not able to collect payments
How will salary sacrifice affect maternity, paternity, parental or sickness leave?
Your reduced income may also have an effect on the following:
Statutory maternity pay: Employees with sufficient service and who meet certain conditions may be entitled to statutory maternity payments during a portion of maternity leave which will be affected by participation in the Bikes Scheme. Although statutory maternity pay is a flat rate for part of the qualifying period, the first 6 weeks are usually paid at a rate of 90% of average weekly earnings. During this period, normal deductions will continue to be made. When you go on maternity leave, payments may be suspended until either you return or you resign from the post. If you return, payments will be restarted. If you resign, you will need to pay the balance due, as described in FAQ no: 25
During maternity/paternity/parental/adoption leave: you will continue to have the bike and equipment on loan during your absence with your gross salary still at the reduced level according to the salary sacrifice arrangements. You will continue to have deductions made from any payments you are receiving and/or will accrue a debt that will be recovered as soon as you return to work and receive a payment from your employer
What happens if an employee is made redundant or their contract is terminated?
Employees with sufficient service and who meet certain other conditions may be entitled to statutory payments on redundancy. It is possible, though unlikely, that such payments could be affected when you join the scheme.
If you leave your employer before the final deduction has been made from your salary you will be obliged to pay the remaining amount in full, without any tax exemptions as described in FAQ 25
How will salary sacrifice affect student loan payments?
Yes. Your student loan repayment is 9% of your earnings over 10k. This will alter as the trigger point is based on the salary on which you are liable to pay National Insurance Contributions (NICS). Under salary sacrifice your total gross salary on which NI is paid will reduce, so your loan repayments will reduce.
How will salary sacrifice affect Childcare Tax Credit?
Current advice from the Inland Revenue suggests that you can still apply for Childcare Tax Credit whilst being in a salary sacrifice scheme. For more information check with your Inland Revenue advice line on 0845 300 3900
How will salary sacrifice affect Working Tax Credit?
The vast majority of staff will benefit from joining the scheme. However your personal circumstances may mean that it is not beneficial. This is most likely to be the case for those on a low income affected by Working Tax Credit, which may cancel out the savings made on Income Tax and National Insurance Contributions. Please seek advice from the Inland Revenue Tax Credits helpline on 0845 300 3900
Will the reduced gross salary affect credit status, eg when applying for a mortgage?
In replying to credit reference checks we will inform companies of the situation with regard to your total remuneration package. On the grounds that you are actually better off under this scheme, it can be seen that you should not be disadvantaged. However, all lending companies are different and your employer can make no guarantees.
Do we need to inform the HMRC of our bike to work scheme?
The bike scheme is a government-sponsored initiative that has been set up so that you do not have to pay tax on items bought under the agreement. There is no need for you to contact the Inland Revenue
Is there a credit check?
There is no credit check
What happens if someone changes their mind after joining the scheme?
Under the unique terms of the scheme it is not possible for you to cancel your loan. You are therefore committed to making the salary sacrifice for the duration of the loan period. If your employment is terminated during the loan period you will still be liable to complete payments identified in the loan agreement. This means that you must be sure you are happy entering the scheme and with the selection you have made.
How much admin' is involved in running the scheme?
We are often challenged with this request and would like to sum up the admin' content as follows:
1. Your human resources department needs to check eligibility of received voucher requests
This is done via access to our secure extranet pages. These pages are an on-line replication of the quote form employees collect from the bike shops. The on-line form, complied by the employees, also asks for age and manager details. Typical eligibility criteria are:
a) Employees must be over 18
b) Employees' contracts must exceed the 12 month hire period (18 months if finance is used)
c) Employees must not fall below minimum wage after salary reductions
d) Subject to company policy employees should have completed their probation period before entering the scheme.
Depending on how automated your company records are, the above checks should take a few minutes for each employee.
2. Payroll
Salary sacrifice is part of pretty much every software pay package in existence today. If your company has run HCI or childcare vouchers then it's the same procedure, except that Cyclescheme only has to be amended at the beginning and end of the 12/18 month scheme, rather than each month as in the case of childcare vouchers. Again a few minutes work by experts in the company.
3. Transfer of goods at the end of the hire period (FMV payment)
Employees receive an invoice for 5% (+ VAT) of the retail price of the bike package at the end of the hire period. When they pay this the ownership of bike package is transferred from the employer to the employee.
4. Staff contract amendments
This is handled by our hire agreement which temporarily amends staff contracts during the hire period.
Are electric-assist bikes allowed in the scheme?
Yes, you can select electric-assist bikes in the scheme. You may need to know that, if your employer has a �1000 limit on voucher price, you cannot exceed this figure for a more expensive elctric-assist bike.
Will the partner shop be able to order my bike for me?
Bike shops can order bikes and accessories for you but may wish to either take a deposit or have any carriage fees covered to prevent them from being left with a special-order bike or paying extra carriage fees.
Any deposits taken on your credit card will be credited back when you redeem your voucher.
A small £10 carriage admin charge will end up costing you a few pence each day.
I work for the NHS/Charity/University. Can my employer claim back VAT on bike package purchases?
A brief explanation is that the NHS, Universities and Charities cannot in general charge VAT for their services and hence cannot reclaim it from purchases across the board of employees.
Can I buy a custom bike through the scheme?
A very small selection of Cyclescheme's partner bike shops may wish to add an administration fee to quotes for custom bikes.
This is because the profit margins on custom bikes, built in the UK, are lower than those available on standard, mass-produced bikes. The shop also has much more administration when building a custom bike as parts have to be ordered in advance and in-house builds coordinated amongst other daily work.
The administration fee is typically no more than 10 to 12% and is ONLY applicable to custom bikes.
It is worth noting that the savings from the scheme are also applied to reduce this administration fee to well below 10%.
How does Cyclescheme make its money?
Cyclescheme take a small commission from what they pay the bike shop.
