Cycle to Work Scheme
As a way of promoting healthier journeys to work and to reduce environmental pollution, the Finance Act 1999 introduced an annual tax exemption enabling employers to loan cycles and cyclists’ safety equipment to employees as a tax free benefit.
This exemption was one of a series of measures introduced under the Government’s Green Transport Plan.
Who can participate in the scheme?
Can all companies participate in the scheme?
There is no minimum or maximum size of company in order to participate in the scheme, meaning all companies can participate in the scheme.
Can any employees participate in the scheme?
Employees which are eligible to participate in the scheme must be paying PAYE, earn more than the national minimum wage and have a contract that does not end during the period that the bicycle is loaned to them.
What is meant by Salary Sacrifice?
Salary sacrifice occurs when an employee agrees to give up part of their salary for an agreed period in exchange for some non-cash benefit such as the loan of a bicycle and safety equipment.
How long will this salary sacrifice last for?
In cycle to work schemes it is usual that the salary sacrifice will continue for a period of 12 months.
What are the benefits of salary sacrifice?
As salary sacrifice is taken from the gross salary – before tax – rather than the net pay it means that the employee pays less income tax and National Insurance.
Employers can then reclaim VAT and in most cases will pass this savings on to their employees with the intention of increasing savings further.
Do employers have to ensure that employees participating in such a scheme take out adequate insurance?
As each scheme will be implemented slightly differently depending upon the employer it follows that employers can make it a condition of the scheme that employers insure the bike against such things as theft or damage. However, this may not be a condition of all schemes.
In most cases when an employee participates in a cycle to work scheme that employee will be required to sign an agreement stating that they will arrange for insurance and will insure the bike themselves.
What happens if a bike is to be used during the course of employment?
In some situations the bike will be used during the course of employment for example when an employee cycles to client meetings. If this is the case the employer should check that any potential claims are covered by their employers’ liability insurance.
What happens if the claims are not covered by the employers’ liability insurance?
In the situation whereby any potential claims will not be covered by the employers’ liability insurance the employer should ensure that they take out specialist cycle scheme insurance.
Do the individuals participating in the scheme have to keep the bikes in good working order?
As a condition of participation in the scheme employers can ensure that employees who sign up to the scheme maintain the bike in a roadworthy condition.
Are there any legal obligations that an employer must adhere to when implementing a scheme?
An employer when implementing a cycle to work scheme will have various legal obligations according to the Consumer Credit Act 1974.
What are the obligations according to the Act?
The salary sacrifice and loan agreements for the use of equipment will be subject to the Consumer Credit Act.
Currently the Office of Fair Trading (OFT) issues a group consumer credit licence which covers employers using the scheme. However, this licence is limited to bikes up to the value of £1000 including VAT.
What happens for bikes worth more than £1000?
For bikes which are worth more than £1000 the employer would be under an obligation to apply for their own individual licence.
Can an employer guarantee to sell the bike to an employee after the end of the loan agreement?
An employer must not guarantee to sell the bike to the employee at the end of the loan agreement.
What is the reason for this?
The reason for this is that it would take the arrangement outside the scope of the aforementioned group licence.
What should an employer do at the end of the agreement?
At the end of the loan agreement, to stay within the scope of the group licence, the employer should provide an option to sell the bike to the employee for a fair market price.
Can an employer give the bike to an employee at the end of the scheme?
An employer cannot simply give the bike to the employee at the end of the scheme as this may turn the bike into a benefit in kind which would prevent the application of the salary sacrifice.
Does an employer have any obligations under the Salary Sacrifice Scheme?
In order for an employer to correctly set up a salary sacrifice scheme they must ensure that this scheme is structured properly. There are various requirements for these schemes set in place by HMRC – an employer should ensure that all these requirements are adhered to.
Are there any examples of these requirements?
An employer should ensure that participating employees’ contacts of employment are varied in order to reflect the salary sacrifice. HMRC implements a requirement that a salary sacrifice is irrevocable or for a fixed duration.
If an employee has a unilateral right to demand that the previous salary arrangements are returned to then this would suggest that a full salary sacrifice has not been made.
Are there any health and safety requirements imposed on employers who implement a cycle to work scheme?
Under health and safety law all employers have a duty to protect the health and safety of all of their employees while those employees are at work. However, this duty is unlikely to be extended to bicycle journeys to and from work. This is in must the same way as an employer not being liable for the health and safety of those employers who drive to and from work.