The Cycle to Work Scheme Explained

New bikes are in truth pretty expensive and difficult to sneak past the finance police at home.  Funding your next purchase can be a challenge.  The government backed cycle to work scheme  is a great option for many people making bike ownership more affordable.  This week our blog covers the cycle to work scheme explained to help you make the most of this.

What companies do the cycle to work scheme?

For most people working in large scale companies they will offer this as an employee benefit.  This option forms part of flexible benefits.   Firms that have a central payroll function should be offering this. If your firm don’t currently offer it then ask.  It is a straight forward application process for firms to go through.  We’re hoping to give you information you need to select this from benefits at work.

What is cycle to work scheme UK?

The cycle to work scheme has been around since 1999.  It was intended to help people buy bicycles for their commute by providing an interest free loan that is repaid income tax free. It is a salary sacrifice payment with the money deducted monthly from your salary.  This payment comes out before your tax is calculated and deducted.

How cycle to work scheme works

First thing to do is decide the size of loan you want to take out.  The cycle to work scheme currently has a limit of £1000.  It may sound like a lot of money but once you start looking seriously at bikes you will realise it won’t go that far.  Truth is the scheme needs to come up to speed and increase the limit in line with the ever improving world of bicycles.

Which shops do cycle to work scheme?

Having decided your loan amount you need to consider who will be the supplier of your trusty new steed.  Previously the list of suppliers was seriously constrained limited to only  Evans or Halfords.  This didn’t permit you much choice or access to real bargains.  The list is now vast and includes small scale retailers and principally on-line companies including Ribble, North Road Cycles, Planet X.  Submitting your application you then wait for your voucher and upon receiving it take it to your chosen supplier and collect your new bicycle.

Cycle to work scheme calculator

So how much is this going to sting you in the back pocket and why does this make sense?  Classic answer.  It depends.  The cost to you depends on what rate of tax payer you are and how long you stay with your employer.  Simplifying the numbers below as an example :

Cost of bike = £600

Monthly payments = £50 (before tax and national insurance)

Net salary cost per month = £34 (assuming lower rate tax payer)

Percentage savings = 32%

Are cycle to work schemes worth it?

So you get a £600 voucher (loan) completely interest free.   You can then repay it over 12 months with the money coming out of your salary automatically.  This salary sacrifice is before tax and national insurance deducted.  If you’re lucky enough to be a higher rate tax payer (lucky in the most painful sense of the word) then the savings could be even larger.  This would mean you are effectively saving nearer 50%.  If you shop around in the January sales as well getting last years model for a cut down price you can make even more savings.

Will you own the bike on the cycle to work scheme?

Your loan is repaid over a 12 month period which means after a year the bike is yours.  Kind of!  The cycle to work scheme is effectively a hire agreement for the bike.  The government amend the rules periodically on what this means.  You effectively extend the hire period through signing up to an extension with a fee to transfer the ownership to you (around £70).  The amount varies depending on the size of loan but is pretty nominal.

Does the cycle to work scheme cover all bike types?

The proviso of the arrangement is that you buy a bike for the commute to work.  This means unicycles don’t fit the bill but you have pretty free reign on what you go for.  Other than that the only downside is the complication of transferring ownership to you after the loan period.  This seems to change and require you to sign your life away occasionally extending the hire window.  Overall though if you can use this scheme it could save you big time.  Consider this – Buy a discounted bike using this and you could effectively buy a bike valued at £1500 for £500 impact to you with the payment spread over 12 months.  Winning!

BILLY

About the author – Billy is the founder of Trivelo Bikes and a big fan of the bike to work scheme having used it on numerous occasions to help fill his garage with his range of n+1 bikes.