At the end of October 2009 the 'Cycle to Work Guarantee' was launched. It is a voluntary initiative from the Department for Transport that challenges businesses to encourage staff to cycle to work.


The major incentive for employers is the tax break associated with the scheme, but it's a win-win situation because there are tax benefits for the employee too.


To promote healthier journeys to work and to reduce environmental pollution, the 1999 Finance Act introduced an annual tax exemption allowing employers to loan cycles and cyclist safety equipment to employees as a tax-free benefit.


The exemption, which not only applies to tax but also National Insurance contributions, has prompted the creation of 'Cycle to Work' schemes as part of salary sacrifice arrangements.


A salary sacrifice happens when an employee gives up the right to receive part of their pay under their contract of employment. A salary sacrifice is neither a deduction from salary nor is it a charge on salary but arises when the employee agrees to a lower salary in return for some form of non-cash benefit (in this case the loan of a bicycle or cycle safety equipment).


If it is assumed that the employee is loaned equipment worth £500 over a period of eighteen months they could sacrifice £6.41 per week from their gross pay (78 weeks x 6.41 = £500.00).


This typically saves the employee around 30 to 50% of the cost of the bike, depending upon whether or not they are a higher or basic rate tax payer as it is paid for out of their gross income.


Where costs of loaning equipment to the employee are offset through a salary sacrifice arrangement, the employer will save secondary class 1 NICS (at up to 12.8%) on that part of the employee's gross salary sacrificed. So, in the above example the employer would save £64.00 (£500 x 12.8% NI).


As well as the cash benefits, these schemes also boost staff motivation, improve their health and push up their productivity and ensure your business is seen as a greener and more attractive employer.


Two other key points to note:

  • The employee cannot sacrifice salary if it takes their pay below the National Minimum Wage.
  • At the end of the hire period the employer must charge the employee the reasonable value of the bike if ownership is transferred to the employee. Second hand values for bikes seem to be very low so 5% of the cost of the bike is typical, but this must be determined on a case-by-case basis.

Guidance on setting up 'cycle to work' schemes are available on the OFT website at http://www.dft.gov.uk/pgr/sustainable/cycling/cycletoworkguidance


We hope you found this information of interest. If you are looking at other ways to save costs make sure you regularly review your business insurance cover. If you need any assistance on insurance coverage then call JLT Business Insurance Services on 0800 454 371

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Disclaimer

Whilst all reasonable care has been taken in the preparation of this publication no liability is accepted under any circumstances by Thistle Insurance Services Limited for any loss or damage occurring as a result of reliance on any statement, opinion, or any error or omission contained herein. Any statement or opinion reflects our understanding of current or proposed legislation and regulation that may change without notice. The content of this document should not be regarded as specific advice in relation to the matters addressed.

JLT Business Insurance Services is a division of Thistle Insurance Service Limited who are authorised and regulated by the Financial Services Authority under No. 310419.

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