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If you work long hours and fail to make enough use of your gym membership, or simply dread the dreary grind of urban public transport, cycling to work is worth investigating. The government will even offer you a tax sweetener to do so, saving up to 42 per cent on the cost of a commuter bike. FT Money kicks the tyres on the Cycle to Work scheme.
What is the scheme?
This is an entirely legal, government-sanctioned tax saving — and with the annual Cycle to Work day occurring next Wednesday, you are bound to hear more about it. The scheme involves an employer first purchasing a bike on an employee’s behalf, before lending it to the staff member under a hire agreement. Monthly repayments are deducted straight from the employee’s salary under a so-called “salary sacrifice” agreement, taken out of gross salary before tax and national insurance is paid. Typically spread over 12 to 18 monthly instalments, no interest is payable.
It is most profitable for higher earners, says veteran cycling journalist Carlton Reid, as “the higher your tax bracket, the bigger the saving”.
How much can I save?
According to Cyclescheme, one of several groups providing the scheme to employers, someone earning £100,000 who buys a bicycle priced at £900, with £100 of accessories, would save £418 on these purchases. Someone earning £30,000 would save £319.
As well as slashing commuting costs, there is also a potential saving on gym membership fees and on the time spent on a treadmill. A 41-year-old who weighs 12 stone and cycles at a moderate speed for an hour each day would burn 442 calories, according to the British Heart Foundation.
That is roughly equal to a 50-minute jog, and while higher intensity exercise could be more effective than a slow cycle, sprinting to the traffic lights before they turn red can definitely raise one’s heart rate.
There are also benefits for employers. Lucie Cherrington, head of Halfords’ cycle to work division, calculates that a company with 20 workers in the scheme, who each bought a £650 bike, would save £1,798 in employers’ national insurance contributions over 12 months because of salary sacrifice.
Can I buy an ultra-expensive machine?
The bicycle needs to be used for at least part of a commute, not only for weekend time trials.
Most Cycle to Work scheme programmes cap the value of the bike and accessories a staff member can purchase at £1,000. This is because many companies choose to join a group consumer credit licence, set up by the Office of Fair Trading, to cover all hire agreements entered into under the scheme, which imposes the £1,000 limit.
Some companies, such as car manufacturers or retailers, will already have their own consumer credit licence, however. “You could end up with a £3,000 bike if your employer has their own credit licence,” Ms Cherrington says. Mr Reid says that, “quite legitimately, people are buying expensive and exotic bikes that they also use to get to work.”
How does payment work?
Officially, the scheme is a hire agreement, and not a hire purchase agreement. This means staff do not automatically get to keep the bike at the end of the term. Employers who promise this could lose the tax benefits.
But companies are permitted to sell the bike, at the end of the hire period, to the employee for market value. When the monthly repayments are finished, most schemes will let you continue to hire the bike for a token deposit. And the longer the hire period lasts, the more the final purchase price will fall.
“Typically, this would be offered at substantially less than the original value of the equipment,” HMRC states. And bikes do depreciate fairly fast. According to Ms Cherrington, a bike worth more than £500 would have a negligible value after six years.