Get a new bike tax free at up to 50% off the recommended retail price! The Government’s Green Transport Plan allows you to lease a bike off your employer, exempt of Income Tax, National Insurance and VAT. After 1 year and a minimal final payment the bike is yours! For more information or a leaflet on the cyclescheme give us a call on 0800 0963874 or visit www.cyclescheme.co.uk
Who are Cyclescheme?
Cyclescheme are an independent company created to help both employers and employees make the most of the Green Transport Plan Initiative and associated tax concessions offered by the Chancellor. Cyclescheme use their industry experience and trade contacts to get you riding to work on a bike of your choice from your local preferred bike shop.
Who is entitled to use Cyclescheme?
Under this agreement, employees who have contracts of employment that outlast the duration of the salary sacrifice (pay back) period can benefit from obtaining a tax-free bike and accessories (safety equipment). Employees must be over 18 years old and have exceeded the employer's probationary period (if applicable). Employees must pay tax via the PAYE system.
What is a salary sacrifice arrangement and how are savings made?
A salary sacrifice happens when you give up your right to receive part your pay in return for the employer's agreement to provide some form of non-cash benefit, in this case the loan of a bicycle and related equipment. A summary of the advice from the HM Revenue & Customs is available from their website at www.hmrc.gov.uk/specialist/salary_sacrifice.pdf. You are paying back the loan on your goods from gross, rather than net, pay for the hire period - hence allowing you to benefit from income tax and NI relief.
The actual amount of discount appears to be a bit vague - what are the savings?
Typical savings are 43% but the precise amount depends on your personal tax band. An individual being taxed at the higher rate will save a bit more (around 50%) than someone who pays standard rate tax. Some employers cannot reclaim VAT in the normal way so the savings are not as great, the NHS is a good example. In this case expected savings are 33 and 40%. Adding the ability to spread payments over one year still means that great savings are to be made.
It is at the discretion of the employer if they pass on the VAT saving, some employers will retain the VAT to offset any administration costs.
If the employer uses external finance, to buy the bikes, then savings may be around 5% less than quoted above but this is countered as payments are usually spread over 18 months to achieve a better borrowing rate.
Finally, the fair market value payment of around 5% needs to be taken into account to establish the total savings.
Who actually owns the bike?
The bike and goods remain the property of your employer until the hire period finishes.
If your employer buys the bikes using external finance then the finance company will own the bikes during the hire period and not your employer.
Either way, at the end of the hire period you may be given the opportunity to buy the bikes for a fair market value (plus VAT).
What happens at the end of the loan period?
It's your employer's choice whether they opt to sell you the bike at the end of the hire period. If you choose to become the owner of the goods, you may be offered the opportunity to pay the Fair Market Value for them from your net salary. Your employer needs to assess each bike separately as to its worth but in our experience the market shows values to be around 5% of the original value. If you choose not to buy the bike you will be charged the equivalent of the Fair Market Value to dispose of the goods, probably to a charity.
The fair market value cannot be stated before or during the scheme as this could be considered a benefit in kind as hire-purchase does not warrant any tax-relief.
