Cycling to Work

Cycling to Work

RIDINGABIKE

Learn how to cycle with confidence

Economy

Cycling is an economical mode of transport compared to car travel. The initial cost of a bicycle is low and running costs are negligible. With no tax or fuel costs to pay, the cost of cycling is approximately 5% of the cost of car travel (Rough Guide 2003). It is necessary to consider not only direct costs, but also external costs of any type of travel. For example, cycle commuting can reduce business costs as employees spend less time in traffic queues and are likely to take less sick leave because of greater health (EC 1999).

Cycling can increase local transport capacity by making better use of road space, therefore reducing the need for investment in new transport infrastructure. On existing roads cycling has a lower physical impact on the road surface than motor traffic, reducing the need for road maintenance.

Cycle to Work

Is a tax incentive aimed at encouraging employees to cycle to work thereby reducing air pollution and improving their health. The scheme allows employees to benefit from a long term loan of bikes and commuting equipment such as lights, locks and panniers completely tax free.

Employers benefit from fitter, more punctual, more alert staff. Employees benefit from better health and better bikes because their money goes further. With a budget of, say £400, an employee in the high tax-band can now afford a bike, plus accessories, worth nearly £800.

The typical saving for an average tax-payer is between 38-45 per cent. There are online calculators to help you see how much you may be able to save. This one is from Cyclescheme. Type in your salary, the cost of your new bike and the cost of accessories such as a helmet, lock, panniers and so forth.

HOW IT WORKS

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

Þ The employer signs up for the scheme

Þ The employee then choose a bike from an approved supplier

Þ The bike is then bought by the employer who reclaims the VAT

Þ The employee then take delivery of the bike for their exclusive use - provided they use it for qualifying journeys, i.e. commuting to work

Þ The VAT free price is then deducted from the employee’s salary by equal instalments over a period of time (typically 18 months), but as they do not pay tax or NI on the income they forego, this will give them further savings.

Þ After the period of salary sacrifice, the employer may give the employee the option to purchase the bike at a ‘fair market price’, though depends on the period that the cycle loaned to them.

This is an example of how Cycle to Work helped 'Greg':

a. Under his employer’s scheme, Greg chooses to have the loan of a bike retailing at £450

b. His employer reclaims the VAT – reducing the cost to £383

c. This net amount is met by Greg agreeing to a salary sacrifice whereby his gross pay is reduced by £21.28 per month over 18 months

d. The monthly net cost to Greg will be £14.26 because he doesn’t pay tax or national insurance on the gross pay (£21.28) that he has sacrificed

e. At the end of the 18 month period Greg’s employer offers the ex-loan bike for sale at a fair market price e.g. £50 (To establish the fair market price, employers should obtain quotes from local bike shops as the value of the bike will partly depend on the level of use)

The cost to Greg is:

· Net salary given up £14.26 x 18 months = £256.68

· Cost to buy the bike at end of the period = £50

· Total cost to Greg (68% of retail price) = £306.68

Text Box: This “fair market price” is usually five percent of the original package price. So, after an 18 month “loan” for a cycle package costing £1000, the employee takes full ownership for just fifty pounds. The real discount available to an employee will be based upon their own personal tax circumstances (higher tax payers get higher discounts) and whether their employer can recover all VAT. Some public sector employers, charities and a few others may not be able to recover all the VAT. The discount also varies depending whether cash purchase or lease finance is used. In rare cases, where employers decide to directly bear all scheme costs themselves, employees need no budgets at all, with the full cost of their loan bikes then legally treated as “non cash tax free benefits”. However, although it is at their discretion, most employers do not actually incur the costs themselves. They accomplish this by taking advantage of parallel salary sacrifice tax legislation, allowing them to recover all costs from their employees over a period of time, while their employees still significantly benefit from Income Tax and National Insurance reduction in line with salary sacrifice, plus input VAT recovery where possible.

Cyclesheme.co.uk,.