.jpg)
The Cycle to Work scheme is designed to help you save money on a new work bike, and accessories whilst spreading the cost of the purchase over
monthly tax-free instalments through your employer. Most schemes offer you the chance to purchase an electric bike (e-bike) if you're looking for
something to give you an extra boost on your commute. Here is some great insight from our friends at Cyclescheme.
Cycle to work operates as a 'salary sacrifice' employee benefit. This means that you agree to give up part of your salary in exchange for a benefit – in this instance the benefit is a bike and/or accessories. The salary sacrifice is taken from your gross salary (before tax) which means that you will pay less Income Tax and National insurance.
Watch the video:
How does salary sacrifice create a saving?
The saving is achieved by paying for the bike and/or accessories directly from your gross salary (before tax). This means your income tax and national insurance are based on your salary less the cost of the bike and/or accessories. This means that your income tax and national insurance are calculated on the reduced amount of salary. Hence, the amount of tax and national insurance you pay is less.
Normally, when you get a bike the process is, you earn your money, you pay your tax, you choose your bike and buy it. When you get a bike via salary sacrifice however the process looks like this, you earn your money, you choose your bike and pay for it, you pay your tax. The graphic below visualises this:
As you can see, by going down the salary sacrifice route you will lower the amount of income that you can be taxed on and thus make a significant saving on the cost of your new bike and/or accessories.
An up-to-date overview of rates of tax can be seen on the Government's website. Most scheme participants save between 32-42% on the cost of their bike and/or accessories during their initial hire period. It's important to remember that the cost of the commuting package will always show up on your payslip as the gross (or RRP amount) rather than the net (or 'with-savings') amount.
It's also important to remember that an Ownership Fee will be due at the end of the Hire Period. This is to avoid tax liability and to ensure ownership of the bike is smoothly and effectively transferred to you. We recommend asking your employer what the transferal of ownership fee is to obtain more insight and to calculate your total savings.
Try out this savings calculator from our friends at Green Commute Initiative. Please note: The calculations provided here will vary depending
on your personal taxation and your employers scheme.
Please only use this information as a guide. For exact savings we would always recommend liaising directly with your employer.
