UK Cycle to Work scheme still viable for long-serving staff

Loophole means big discounts still available

Changes to the UK’s Cycle to Work tax incentive scheme aren’t as damaging as originally feared, and could actually be a good thing for both employees and employers, according to Evans Cycles.

Mark Brown, the bike shop chain’s Ride 2 Work corporate business manager, says the new table of values for bikes will make the scheme easier for companies to administer, making it likely that more will offer the benefit to their staff.

Not only that, but it could enable employees to get hold of a new bike for even less money than before, despite initial fears – following new guidance from HM Revenue & Customs in August – that bikes bought through the scheme would now cost significantly more.

Previously, employees chose a bike, ‘hired’ it from their employer for a set period via salary sacrifice – thus avoiding VAT on the purchase and paying less income tax and national insurance each month – and then bought it for a nominal fee. This was supposed to be its second-hand value but was often much lower.

The new table of values sets in stone what employees must pay for the bike at the end of the hire period, and this is often substantially higher than the amount that was demanded previously.

When the change was announced, the Cycle to Work Alliance – a group of leading providers of the scheme that includes Evans as well as Halfords and Cyclescheme – warned that this “could make it too expensive to purchase the bike after the hire period”.

However, Brown says a loophole exists that allows employees to ‘hire’ their bike from their employer for up to six years, even if no repayments are made after the first year. The bike can then be transferred to their ownership for free, as the table deems its second-hand value to have dwindled to zero.

Of course, this assumes that the employee is still working for the same company in six years' time. If they leave before that time, they can buy the bike for the appropriate amount specified in the table.

“The scheme is really flexible so ownership can be transferred at any time if either party requests it,” says Brown. “This is a great solution, ensuring employers offer a compliant scheme which is easier to administer and employees can still take advantage of fantastic savings. In fact, the savings can actually be greater because the longer the hire term, the cheaper the bike becomes, ultimately having no cost.”

As an example, someone who earns £20,000pa and buys a £700 bike through Evans’ Ride2Work programme with a six-year hire agreement will pay £34.26 a month for the first year. After that there are no more repayments due and, assuming they stick with the scheme for the full 72 months, no ‘disposal value’ fee to pay.

In total, they’ll pay £411.06 for the bike – a 41 percent saving. The discount for higher rate taxpayers is even greater, and this doesn’t take into account the money saved through lower income tax and national insurance. Overall, the potential discount available is higher than under the original (pre table of values) Cycle to Work scheme, when some form of transfer fee did always have to be paid.

People who have an existing Cycle to Work agreement shouldn’t despair – Brown says they may be able to extend their hire agreement for a longer term. “There are other ways that employers can structure the valuation and transfer of ownership,” he says. “However, in our view they create more paperwork and reduce the savings.

“The first option involves self valuation, whereby employees have to do a fair amount of work to prove how much their bike is worth. The second option is to submit something called a P11d which is a way of paying tax on the value of the bike, which involves completing a self assessment tax form.”

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