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Cycle to work schemes can help UK commuters spread the cost of a new bike and accessories. A saving on full price is made via an arrangement between HMRC (tax department of UK Government), employers and employees. Employees save by not paying tax or national insurance on a part of their salary.
There are several different schemes for employers to choose from. There are some very strict rules in place which all must comply with. Some schemes do more for employers than others – like assuming ownership of any unwanted bikes. Employers have put participation in the schemes in their top ten of employee benefits.
In May of 2022, one of the longest-running schemes issued its millionth voucher. The main schemes are covered in detail here where we cover the savings made depending on your PAYE (Pay As You Earn) tax bracket.
But what happens when the scheme comes to an end, or if your circumstances change and your relationship with your employer comes to an end?
Cycle to Work Scheme Hire Period
Most cycle to work schemes are at least a year’s commitment from the start. The length is determined by your employer. Chain Reaction Cycles, Cyclescheme and Halfords promote offers longer than 12 months. Cycle Solutions advertises a six month option.
Your pay packet sees a reduction each month known as a salary sacrifice. In most cases this will be 1/12th of the agreed value of the bike and accessories, for a year long scheme.
Notice our use of the word ‘Hire’. You never actually own the bike unless you come to an arrangement with your employer to take possession after the end of a hire period. You can always choose to give the bike back at this point too.
What Happens at End of Cycle to Work Scheme?
Hopefully you’ll have enjoyed riding and want to keep the bike. You can enter into a new agreement – a (usually refundable) deposit may be taken and you’ve rehired the bike. You can buy the bike at this point. Or you give the bike back – technically you would return accessories and clothing too.
If you give the bike back but still want to ride, you can start another 12 month agreement and choose a different bike.
How Much Do I Pay at End of Cycle to Work Scheme?
If you give the bike and accessories back at the end of the scheme it’s at no cost to you. When you extend the hire period you should have nothing to pay (a refundable deposit is taken in some instances). The cost of buying the bike includes an HMRC calculation of the fair market value of the bike.
The length of any new hire agreement for the same bike differs from scheme to scheme and is very significant for this fair market value commanded by the tax authorities. The chart below expresses the fair market value (or disposal value in tax-speak) as a percentage of the original value of the bike (including VAT). You’ll pay this amount to own the bike.
Disposal Value of Bicycle
|AGE OF BIKE||BIKES under £500||Bikes over £500|
The final amount you pay if you want to keep the bike lowers significantly as the length of this new agreement increases. This is because wear and tear will run down the value to what HMRC call negligible value. Most schemes recommend running the longest term you can for this second agreement. The advertised savings they make assume you will.
Let’s take a standard commuting bike with a value of £600. A lower rate taxpayer will sacrifice £408 in the 12 months of the hire arrangement. If they buy the bike after this year the fair market value (some schemes call it an ‘Ownership Fee’) is £125. If they are on a scheme which is another three years, fair market value is £42.
Even if you sign up to an agreement where the fair market value drops to 0%, you may be asked to pay a fee. Your scheme provider must tell you in advance of reaching any agreement.
Can I Pay Off My Cycle to Work Scheme Early?
Nothing we’ve read across the schemes’ FAQs says you can pay off the first hire period early. The only information we see specifically offered is from Chain Reaction Cycles which says…check with your employer. Employers will probably be reluctant to alter their payroll arrangement and start a precedent.
Can You Cancel Cycle to Work Scheme?
Cycle to Work Schemes are financial products and scheme owners have to follow regulations. These include a 14-day cooling off period where you can cancel. If you then think you might cancel before 12 months are up, you should get something in writing with the employer before signing the agreement.
It’s their bike but employers probably don’t want to have it, unless they run pool bikes for employees. If you don’t get something agreed up front, it’s going to take some negotiation between you and your employer. They do not have any unsigned obligation to take the bike off you and stop the salary sacrifice inside the first hire period if you want to cancel.
Cycle to Work Scheme: Change Job
If you change jobs in the first hire period you must pay the balance of the hire agreement from your final salary. If your final salary doesn’t cover it, you’ll be expected to pay your employer. This balance will come from net pay.
Therefore you will make Income Tax and National Insurance contributions on the outstanding amount. You won’t ever pay more than the value of the bike. But you won’t own it – you’re just bringing a hire agreement to an end.
This scheme suggests in its FAQs that an employee can move jobs during the secondary, extended hire period. You should check with your HR department if you are unsure.
What Happens If I Quit My Job?
The same rules apply as if you are changing your job. The employer is entitled to take the balance of the hire amount as a deduction from your final salary out of your net pay. If your last payslip doesn’t cover this amount, your employer should bill you for any outstanding amount.
Cycle to Work Scheme: Redundancy
All the same rules apply in the event of redundancy. The outstanding balance will simply be deducted from your net pay in any final salary package.
Can You Transfer Cycle to Work Scheme to a New Employer?
Most schemes and employers will not permit a transfer to a new employer because of all of the HMRC obligations, codes and administration involved. The two employers could use different schemes and won’t share payroll information readily.
In theory, it might be possible to TUPE transfer a scheme, where the company you work for changes ownership from one to another – your job title and some of the terms and conditions may change but the Cycle to Work scheme terms should stay the same.
Cycle to Work Scheme: Stolen Bike
There are a couple of points worth checking with your employer in case your bike is stolen. If you arrange an insurance policy which replaces the bike, you should be able to continue with your salary sacrifice and carry on with the scheme. Of course, the replacement still belongs to the employer.
When you take out insurance, be sure to disclose that you are hiring the bike from your employer to avoid the potential for a claim for theft being declined. Insurance companies need to know this type of information. Some may not want to insure a hired bike and you may need to argue that you have an insurable interest in the bike.
If you do not replace a stolen bike, it may be argued that the main purpose of Cycle to Work – that it gets workers commuting on two wheels – is not being met. Check with your employer whether they would stop the salary sacrifice and take the balance from your net pay, or allow you to pay the hire amount off with the savings.
Can I Sell My Cycle to Work Bike?
To stay within the parameters of the Cycle to Work principles you need to be riding the bike you’ve selected for the period of any hire agreement. Once you own it – after the term has ended and you’ve chosen the number of years you want to let the value reduce – then you can sell it.