Salary Sacrifice Bike Scheme

The salary sacrifice bike-to-work scheme allows employees to obtain a bicycle and safety equipment through a salary sacrifice arrangement, providing tax benefits and promoting greener commuting.

There are discussions about potential changes to the Cycle to Work scheme, including the introduction of spending caps to prevent high earners from benefiting disproportionately from the scheme. This is part of a broader review of salary sacrifice schemes by the UK Government

HMRC: Salary sacrifice car schemes: A guide for employers

How does it work?

Salary Sacrifice Arrangement: Employees agree to give up a portion of their gross (pre-tax) salary in exchange for the use of a bicycle and approved accessories. This arrangement reduces the employee's taxable income, leading to potential savings on income tax and National Insurance contributions

Hiring the Equipment: The employer purchases the bike and safety equipment on behalf of the employee, who then "hires" it over a typical period of 12 to 18 months. Payments are deducted from the employee's salary before tax and National Insurance are applied, resulting in significant savings—typically between 32% to 47% depending on the employee's tax bracket.

End of Agreement Options: At the end of the hire period, employees may have the option to purchase the bike for a fair market value or return it. There may also be an End of Agreement Fee, which is deducted from the employee's net pay.

Benefits of salary sacrifice bike scheme :

  • Tax Savings: Employees can save on taxes and National Insurance contributions, making cycling more affordable
  • Health and Environmental Benefits: The scheme promotes healthier lifestyles and reduces carbon emissions by encouraging cycling as a mode of transport.
  • Employer Benefits: Employers can save on National Insurance contributions and promote a healthier workforce, which can lead to increased productivity

Case study: University of Stirling contains an excellent video on their salary sacrifice scheme to pay toward the hire of a bicycle and associated safety equipment for 12 months from Cyclescheme.