What is the Cycle to Work scheme?
The Cycle to Work scheme was introduced by government 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 then Government’s Green Transport Plan.
Who can participate in the scheme?
All companies can participate in the scheme, whatever the size. Under the scheme, the company lets the employee hire a bike via salary sacrifice – the employee then pays for it over a 12 or 18 month period (or similar).
Employees who 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 the bicycle is loaned to them.
What is salary sacrifice?
Salary sacrifice is where 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?
Under the Cycle to Work scheme, it is usual that the salary sacrifice will continue for a period of 12 to 18 months. At the end of this period, the employee does not automatically get to keep the bike, but they can buy it off the company.
What are the benefits of salary sacrifice?
As salary sacrifice is deducted from the employee’s gross salary (ie. before tax) rather than their net pay, this means the employee pays less income tax and National Insurance. Employers can then reclaim VAT and, in most cases, will pass this saving on to their employees.
Must employees participating in the scheme take out insurance?
As the scheme will be implemented differently, depending on the employer, individual companies can make it a condition of the scheme that employees insure the bike against such risks as theft and damage. In most cases, the employee will be required to sign an agreement stating that they will arrange for insurance personally.
Whilst not every employer will require this, it is certainly advisable for employees to insure the bike against these risks.
What happens if a bike is to be used during the course of employment?
In some cases, 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.
If potential claims will not be covered by their existing employers’ liability insurance, the employer would be wise to take out specialist cycle scheme insurance.
Must employees participating in the scheme keep their bike 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.
Do employers have any legal obligations when implementing the scheme?
An employer will have various legal obligations under the Consumer Credit Act 1974. The salary sacrifice and loan agreements for the use of equipment will be subject to the Act.
The Financial Conduct Authority (FCA) issues a group consumer credit licence which covers employers using the scheme. However, they are exempt where the value of a bicycle or cyclist’s safety equipment is £1,000 or less, so an employer will not need to be authorised for the consumer hire activity just because it runs such a scheme.
In addition, employers must ensure their scheme is structured properly. The HMRC has issued guidance on its requirements for these schemes and employers should ensure these are adhered to. For instance, they should ensure that participating employees’ contracts of employment properly reflect the salary sacrifice. HMRC implements a requirement that a salary sacrifice is irrevocable for for a fixed duration. So if an employee has a unilateral right to demand that the previous salary arrangements are reinstated, then this would suggest that a full salary sacrifice has not been made.
What should an employer do at the end of the agreement?
At the end of the loan agreement, the employer should provide an option to sell the bike to the employee for a fair market price. 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.
What are the health and safety implications for employers implementing the scheme?
All employers have a legal duty to protect the health and safety of all of their employees while those employees are at work, including where they are using their bicyles for work purposes (cyling to between meetings, for instance). However, this duty is unlikely to apply where employees are cycling to and from work. This reflects the position that an employer is not liable for the health and safety of employers who drive to and from work in a company car.