Frequently Asked Questions
- Which of my employees are eligible?
- Isn't Cycle2Work too good to be true?
- What constitutes having mainly used the equipment for cycling to work?
- Is there a maximum value to the amount of equipment employees can obtain through Cycle2Work?
- What are the costs to my business?
- How do I reclaim VAT on the scheme?
- Can I deduct the cost of purchase of equipment under the scheme?
- How long should my scheme be open to my employees?
- Can an employee enter into more than one Hire Agreement concurrently?
- Do I have to be a director to run the scheme?
- Can the directors have better or more equipment?
- What equipment is available?
- Who owns the equipment?
- What happens at the end of the scheme?
- What if an employee leaves early or is made redundant?
- Who is responsible if the equipment is lost or stolen?
Which of my employees are eligible?
That's up to you - you may want to restrict eligibility based on length of service, or you may want to open the scheme out to all. However, under the terms of Cycle2Work, you cannot offer the scheme to directors only or on favourable terms to them. Employees on or near the minimum wage may not participate in the scheme because the salary sacrifice would take their salary below the legal minimum wage. You could give these employees a small salary increase though, so that they can take part.Isn't Cycle2Work too good to be true?
Don't be put off from implementing an Cycle2Work scheme because up to
50% off a bicycle and cycling safety equipment sounds too good to be
true. Cycle2Work really is as positive as it sounds. To appreciate this,
it helps to understand the government's motives for offering such a
generous tax break. Offering hundreds of pounds off bicycles and cycling
safety equipment isn't an act of generosity or a tax loophole - it makes
sound economic sense. The Government have an ongoing commitment to
reduce our greenhouse gases caused by carbon emissions and to encourage
more sustainable modes of transport. The UK is also nearing gridlock and
this scheme encourages people to use a more sustainable mode of
transport during peak commuting hours.
What constitutes having mainly used the
equipment for cycling to work?
The equipment should be predominantly used for commuting purposes, which
includes journeys made between the employee's home and the workplace, or
part journeys (for example, to the station), or for between one
workplace and another. Provided the equipment is used predominantly for
commuting purposes, then it can also be used during leisure time too.
There is no set criteria, which can be used by the employee to confirm
they have satisfied the "mainly for work" requirement, such as frequency
of use, miles travelled, or hours spent cycling. Employees are not
expected to keep mileage logs but employers should make clear to them
that if they do not use the cycle mainly for qualifying journeys, they
may lose the benefit of the tax exemption. The Hire Agreement provided
for participating staff through this scheme, which is signed by the
employee, outlines this requirement, ensuring the employee is aware of
their responsibilities.
Is there a maximum value to the amount of
equipment employees can obtain through Cycle2Work?
There is no maximum annual tax allowance for the Cycle2Work scheme,
however the Group Cycle2Work Consumer Credit License made available by
the OFT for particpating organisations, permits a maximum of £1000
inclusive of VAT per employee. The employee is unable to top up on the
£1000 limit to obtain a more expensive bike, but you can of course apply
to the OFT for a license to offer in excess of £1000 per participant, or
you may have an appropriate license already in place due to the nature
of your business
What are the costs to my business?
All business activity has cost implications, and implementing a
Cycle2Work scheme is no exception. The costs fall into two areas:
Promotion costs:
Making your workforce aware of the scheme and encouraging take-up.Administrative costs:
Signing up to the scheme, making changes to your payroll to reflect the salary adjustments, and keeping records of employee take-up and related salary sacrifices.The really good news is that, in any case, these minimal costs are recovered by savings such as the reduction in NIC contributions, and the equally important but less tangible benefits such as increased staff loyalty and a fitter workforce.
How do I reclaim VAT on the scheme?
Bicycle and Cycling Saftey Equipment obtained under Cycle2Work schemes
are to be mainly used for cycling to work by employees. As the equipment
is for use in a Cycle2Work scheme for employees, HMRC accept that the
VAT incurred is for the purpose of the employer's business and is
therefore subject to the usual rules on VAT recovery. The benefits to a
business are seen as attracting, retaining and motivating employees and
promoting a healthier workforce. Some businesses are partially exempt
from input tax and so their ability to reclaim VAT may be restricted. If
in doubt, contact your local VAT office.
Can I deduct the cost of purchase of equipment under the scheme?
Employers who purchase cycles and cyclists' safety equipment for loan to their employees
will be able to treat the cost as capital expenditure and claim capital allowances in the
normal manner. For example:
Cost of cycle in year 1 = £500
Amount on which capital allowance due in year 1 is £500 x 25% = £125
Amount on which capital allowance due in year 2 is £375 x 25% = £93.75
And so on. Small and medium sized businesses can claim 40% first year allowances on their
spending on most plant and machinery, which can include cycles and cyclists' safety equipment.
From the employers point of view as long as it is a business asset the employer can continue
to claim capital allowances regardless of how long it is used in the cycle scheme.
How long should my scheme be open to my
employees?
You do not have to run a scheme for any particular fixed period. However, some
employers decide to have a limited period of time where employees can join the
scheme as they can coordinate promotion activities to maximize take-up.
Can an employee enter into more than one
Hire Agreement concurrently?
An employee can have more than one Hire Agreement for Cycle2Work with
you at a time. However you must make sure that any combination of Hire
Agreements does not take the employee below the National Minimum Wage.
Do I have to be a director to run the
scheme?
No. Anyone in an organisation can promote and manage the process. An
authorised representative must sign Supplier Agreement, and
sign the leasing document should there be one in place.
During the scheme, an authorised representative must sign the employee
Hire Agreement so that it can be executed.
Can the directors have better or more
equipment?
No. Under the Cycle2Work rules directors cannot be offered Cycle2Work on
preferential terms.
What equipment is available?
Bicycles and cycling safety equipment suitable for commuting on.
We have a range of bicycles and cycling safety equipment
in stock.
Who owns the equipment?
The employer owns the equipment. The legislation that governs Cycle2Work
schemes quite specifically forbids the employee to own the equipment -
and therefore there can be no automatic right for the employee to own
the equipment at the end of the Agreement. If they do, they cannot claim
the tax exemption. Therefore Cycle2Work schemes operate as loans: the
employer is technically loaning the equipment to the employee for a
fixed-period of time. Although employees do not actually own the
equipment, they remain custodian of the equipment and are free to use it
as they wish, providing it is mainly for cycling to work.
What happens at the end of the scheme?
After the Agreement period is over, the employer may offer to sell the
equipment to the employee for its then fair market value. If the
equipment is leased the leasing company will appoint the employer as the
disposal agent. Either way, under Cycle2Work there can be no automatic
right for the employee to own the equipment at the end of the hire term,
otherwise the Agreement is deemed to be a Hire Purchase Agreement, which
does not attract the same tax exemption. However, clearly it is in the
interests of all concerned if the employer does sell the equipment to
the employee at the end of the hire period.
What if an employee leaves early or is made
redundant?
If an employee leaves before the end of the scheme, they must pay their
employer any outstanding salary deductions from their final net salary,
as compensation for non completion of the salary sacrifice. They may
then have continued use of the equipment without further payment until
the hire period expires, when they may be invited to purchase the
equipment and become the owner. It is important that the employee is not
deemed to be given the automatic right to own the equipment otherwise
they would not be able to benefit from the tax exemption. Employees must
therefore not be offered the equipment to purchase until the culmination
of the hire term. In the case of redundancy, the balance of payments due
on the equipment can be deducted from the employee's redundancy
settlement. The employer may of course choose to waive or reduce this
amount.
Who is responsible if the equipment is lost
or stolen?
Employers and employees need to consider insurance. Even though employers
own the cycles and safety equipment, it may be more practical for the employee
to have the cycle covered under their own house and contents insurance as long
as they advise their insurer that their employer has an interest in the cycle.
Alternatively, the employer may consider adding them to their insurance agreement
with their own insurers. This needs to be determined and set out in the agreement
between the employer and the employee