The government has made it possible for people in Northern Ireland to obtain bicycles TAX-FREE. In many cases this means people can save up to 50% on the cost of a bike. To avail of this, employees must obtain the bike through their employer as part of the Cycle to Work Scheme.
The Cycle to Work Scheme is an incentive created by HM Revenue and Customs to promote greater use of the bicycle as a sustainable mode of transport to encourage healthier journeys and reduce environmental pollution.
It provides a tax-break which enables employers to provide bicycles for their employees to cycle all or part of their journey to work.
The scheme operates through a salary sacrifice arrangement where the employer buys the bicycle, provides it to the employee and then recovers the cost from the employee’s salary over an agreed period, usually 12 to 18 months. At the end of the period the employee can return the bicycle or can arrange to buy it outright from the employer.
The Cycle to Work Scheme is a UK-wide scheme and common rules apply across all of the UK and the following link provides a comprehensive explanation of how the scheme operates - https://www.gov.uk/government/publications/cycle-to-work-scheme-implementation-guidance
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 for the bike by agreeing to a ‘Salary Sacrifice’
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 £4.42 (basic rate tax payer) or £3.78 (higher rate tax payer).
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, £100 can be claimed in year 1 and £80.00 in year 2, and so on…
There are numerous schemes and suppliers of the Cycle to Work Scheme including the Cycle to Work Alliance which has brought together a group of the leading providers.