Cycle to Work Scheme – How does it work?

March 12, 2023

The Cycle to Work scheme is a UK government initiative that encourages more people to cycle to work. It allows employees to buy a bicycle and cycling equipment through their employer. The cost is then deducted from the employee’s salary over a period, usually 12 to 18 months.

In this blog, we’ll learn more about the cycle-to-work scheme and how it works. So, let’s get started!

How does it work?

The Cycle to Work scheme aims to make cycling more accessible and affordable for people who want to cycle to work. Here’s how it happens:

  • The employers offer a tax-free benefit to employees.
  • So, the scheme makes it easier for them to afford a new bike and necessary equipment.
  • For instance, they can buy helmets, locks, and lights.

But how does this scheme help? It helps to reduce traffic congestion, improve air quality, and promote healthier lifestyles. Let’s explore how this scheme works.

Salary Sacrifice Scheme

Suppose an employee wants to purchase a new bicycle for commuting to work. Instead of paying for the bicycle with their own money, they can use the salary sacrifice scheme to pay for it.

In the salary sacrifice scheme, employees agree to have a certain amount of money taken from their paychecks each month to pay for the bicycle. This money deduction happens before the application of taxes. This means they save money on taxes and have more take-home pay.

Payment calculation

Usually, the employer or a third-party provider calculates payments for the scheme. They will determine the amount the employee can contribute to the scheme each month and calculate the payments based on the cost of the benefit or loan.

Options at the end of the loan period

At the end of the loan period, the employee typically has several options. They can:

  • return the benefit
  • keep it and continue to make payments
  • pay the remaining balance in full to own the benefit outright.

The specific options may vary depending on the terms of the loan and the benefits.

What does the scheme offer?

The cycle-to-work scheme offers a way for people to buy a bicycle and safety equipment for cycling to work. Different types of cycles are eligible for the scheme, such as:

  • Cargo and e-Cargo bikes
  • Pedelecs and e-Bikes
  • Other bikes

The scheme also includes safety equipment that cyclists need to wear while riding their bikes. This can include helmets, lights, locks, and reflective clothing.

The UK government removed the cap of £1,000 on the value of the bike and safety equipment. So, people can buy more expensive bikes and safety equipment. This makes it easier for them to invest in higher-quality bikes and equipment that can help keep them safe while cycling to work.


Example

Let’s say an employee makes £25,000 per year and wants to buy a bike that costs £1,000 with some extra stuff that costs £500. So, the total cost is £1,500.

As per Salary Sacrifice Scheme, the amount taken out each month is £83.44, which adds up to £1,001.28 over the year. This means the employee saves almost a third of the total price, which is £498.72.

After 12 months, the employee doesn’t own the bike and accessories. But they can return everything and maybe get a newer model. They can also buy the equipment for up to 25% of the original cost.

The employee can extend the loan agreement for another three years. To do this, pay a small deposit, either 3% or 7% of the original cost. During this time, they cannot make any further payments. At the end of the three years, they can either return everything and get their deposit back or keep the equipment for free.


How to apply for the scheme?

The following are some easy-to-understand explanations of the steps involved in applying for a scheme:

Step 1: Register your company

To apply for the scheme, the employer must register with the organization offering the scheme. To do this, fill out some forms and provide basic information about the company.

Step 2: Choose the equipment

After registration, the employer needs to select the equipment they want to purchase. This equipment is usually related to the scheme in question, and the employer can choose from a list of eligible equipment.

Step 3: Submit an application

After selecting the equipment, the employer needs to submit an application to the organization offering the scheme. This application will contain details about the equipment chosen and how the employer plans to use it.

Step 4: Receive the voucher or redemption code

If the organization approves the application, the employer will receive a voucher or a redemption code. This voucher or code can then be used to purchase the selected equipment, usually from a pre-approved list of suppliers. Once the equipment is purchased, the employer can then claim back the cost of the equipment from the organization offering the scheme.


Wrapping up

The Cycle to Work scheme is beneficial for both employers and employees. It encourages people to adopt a healthier lifestyle as they cycle to work. Also, it reduces their carbon footprint as the number of cars on the road decreases.

Employers benefit from a healthier and more productive workforce, as well as potential cost savings from reduced parking requirements. Employees benefit from cost savings on new bikes and cycling accessories through the scheme, which they can use to commute to work. It’s a win-win situation for everyone!

If you have questions about payroll, you can seek guidance from GJM & Co. Our experienced professionals can assist you.  We will also calculate the payroll for you!

Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.