Cycle to Work Scheme
The government has made it possible for people in Northern Ireland to purchase bicycles TAX-FREE. In many cases this means people can save up to 50% on the cost of their bike. To avail of this offer people must purchase the bike through their employer, as part of the Department for Transport’s ‘Cycle to Work Scheme’.
Any employer (across the public, private, and voluntary sectors) with any number of employees can set up a Cycle to Work scheme. In brief, the process works as follows:
- Employer announces scheme to employees
- Employees order bikes
- Employer Purchases bikes
- Employee pays the employer back for the bike over 18 months by agreeing to a ‘Salary Sacrifice’.
- Employee makes 1 final payment of 5% of the original cost of the bike. It is now owned by the employee
Where do the savings come in?
For the employee:
Through salary sacrifice the employee’s gross (taxable) salary is reduced. This means the employee is reducing their tax and NIC contributions!
E.g. An employee purchasing a bike to the value of £500 would need to sacrifice £6.41 per week from their salary. Net of tax and NIC this equates to an actual amount of £4.29 (basic rate tax payer) or £3.78 (higher rate tax payer). Therefore instead of paying £500 over 18 months they would be paying £335 (33% saving) / £295 (41% saving)
For the employer:
1. Through reducing an employee’s gross salary (and replacing this with a non-cash benefit, i.e. a bicycle), the amount of NIC contributions the employer has to pay is also reduced!
E.g. Based on employees purchasing a bike to the value of £500, an employer would save £64 per staff member (over 18 months)
2. Employers are able to treat the cost of the bicycles as capital expenditure and claim capital allowances.
E.g. If the cost of the bicycle in year 1 is £500, £125 can be claimed in year 1 and £93.75 in year 2, and so on…
For more information please visit www.cyclescheme.co.uk
