How to get your free money from the UK cycle to work scheme!

Nothing is for free surely? So where’s the catch with the UK government’s Bike to Work scheme?

Under the government's cycle to work scheme employers benefit from fitter, more punctual, more wide-awake staff. Employees benefit from better health and better bikes at lower cost because their money goes further thanks to tax incentives from the government. Win Win WIN! And if there is free money being handed out, I'm in!

We all know it is good idea to cycle to work, or to find a greener alternative to taking thesolitary car journey. With extremes of weather becoming more frequent, we are living through our fears of climate change. And who hasn’t bemoaned a planned lack of parking spaces at hospitals and new-build company HQs as you drive miserably around the car park, past the bike racks in the insulated comfort of your car. The ‘sticks’ are all too obvious, so where are the ‘carrots’?

Encouraging car-sharing is one option for an employer formulating a green transport plan, but does Tessa from accounts really want to spend an hour in a small space with the Managing Partner every day? If car-sharing is a Utopian ideal, maybe cycling to work is another option.

Show me the money - how to get your hand on the free money with Cycle to Work

And to encourage us to cycle to work, the government created a little-publicised incentive as long ago as 1999 to encourage employers to help their employees acquire tax-free bikes. In 2005 this scheme was re-branded as Cycle to Work. But how does it work, and in these financially constrained times, how do we get our hands on the free cash?

The principle is that Employers can loan bicycles to their staff as a tax-free benefit on the condition that the bicycles are mainly used cycle to work or for work-related purposes. The employee ‘buys’ the bike at the end of the load period for a nominal sum.

That's all well and good in theory, but how do we get our hands on some real £££?

Meet 'Claire' - here’s an example of how Cycle to Work helped her:

• Under the scheme run by her boss, Claire chooses a bike retailing at £450
• Her boss reclaims the VAT – reducing the cost to her employer to £383
• Claire agrees to a salary sacrifice whereby her gross pay is reduced by £21.28 per month over 18 months (this represents the cost of the bike less VAT).
• However, the actual monthly net cost to Claire will be only £14.26 because she doesn’tpay tax or national insurance on the gross pay (£21.28) that she has sacrificed
• At the end of the 18 month period Claire’s boss offers her the ex-loan bike for sale at a fair market price. In this case she buys it for £50 (To establish the fair market price, her boss should get quotes from local bike shops as the value of the bike will partly depend on the level of use)
• The overall cost to Claire for her £450 bike is:
• £14.26 x 18 months = £256.68 - Net salary given up
• £50 = Cost to buy the bike at end of the period
• £306.68 = Total cost to Claire

So Claire pays only 68% of the total retail price and has £143.32 left over for other retail therapy.

Too good to be true? - How it works from a tax perspective:

According to the Department for Transport, the Cycle to Work scheme works like this:

• Your boss registers for Cycle to Work
• You are then free to select the bike of your dreams from an approved supplier
• This dream steed is then bought for you by your boss, who is able to reclaim the VAT
• The bike is then yours, for your exclusive use - provided you use it for qualifying journeys, i.e. commuting to work
• The cost of the bike (less the VAT element) is then deducted from your salary in equal instalments over a period of time (typically 18 months). You save even further because you don’t pay tax or NI on the income you forego.
• After this period of salary sacrifice has elapsed, your employer may let you buy the bike at a ‘fair market price’. Exactly how much this is depends on the period you have had the bike loaned to you.

This ‘fair market price’ is usually five percent of the original package price. So, after a 18 month ‘loan’ for a bike package costing £1000, the employee takes full ownership for say, just fifty quid, as in Claire's case above.

The actual discount available to you will be based upon your own personal tax circumstances (higher tax payers get fatter discounts) and whether your employer can recover all VAT. For example, some public sector employers (such as the military), charities and some others may not be able to recover all the VAT.

Employer Benefits

It sounds complicated, but there are a number of organisations who take the work out of your hands. Joining the scheme should be cost neutral to employers, and may even result in a cost saving by reducing National Insurance contributions. And then of course there are the benefits that cyclists take less time off work, are more punctual, and providing evidence of that environmental initiative might just be what is needed to tip the balance in your next big tender proposal...

But I already have a bike…

Many existing cyclists ask whether they can use the Cycle to Work scheme to buy just accessories, as they already have the bike.

In theory you can - the fine print says "bicycles and/or safety equipment". However, as most schemes are now run by third-party providers, it's usually their rules you have to play by.
Many scheme operators limit purchases to a £200 minimum (and some have a £1000 maximum), in order to discourage a cyclist asking to buy just a helmet and a lock under the scheme with the accompanying administration involved for the scheme provider. Although if you really put your mind to it, you’ll find no difficulty spending £200 on quality accessories!