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.
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.
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.
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.
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.
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.
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.
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.
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.
