Who is eligible for the Cycle to Work programme?
To qualify for the tax exemption, the cycles and cyclists’ safety equipment loaned by the employer under the scheme must be available to employees generally with no groups of employees excluded.
Employees may find their application is unsuccessful if:
- They have not returned a signed Hire Agreement by the required date.
- They are already in a Cycle to Work Hire Agreement as the rules of the scheme state that an employee cannot be in more than one agreement at any one time.
- The amount applied for takes their salary below National Living Wage.
What is the maximum value of equipment that can be obtained through Cycle to Work?
The Office of Fair Trading has issued a Group Consumer Credit License allowing any employer to run a Cycle to Work scheme up to £1,000 inclusive of VAT.
However, the actual value is up to the employer's discretion.
What happens if the employee leaves or gets made redundant before the end of the hire period?
If the employee leaves before the end of the hire period, they must pay their employer the balance of the amount outstanding, and this will be deducted from their final net pay. The employee will no longer be able to benefit from the tax exemption.
However, this transfer of ownership is the subject of a separate agreement and isn't governed or influenced by the Hire Agreement the employee signs for this scheme.
Can they select more than one bike?
Employees may only enter into one hire agreement at a time, so if they did wish to purchase two bikes then they must both be purchased using the same Certificate.
The legislation does not prohibit the selection of two cycles providing that both are used for commuting to work. For example, they may have a summer route and a winter route to work, both requiring different things from a bike. Or they may have a bike to ride from home to their local railway station and another bike at their destination railway station that is used to complete the final phase of their journey to work.
Bear in mind that employees can only apply for one Certificate at a time, so for example, if they applied for a £1,000 Certificate they would only be able to spend a total value of £1,000 to purchase both bikes.
What if the bike gets stolen or damaged?
It is recommended that employees obtain separate insurance, or check that it is covered under their home contents insurance policy. If their home contents insurer covers the bike, they must inform them the insurer that their Employer (or the Employer's nominated agent, if applicable) owns the bike.
Payments from the employee's salary will not stop or be suspended due to loss or damage to the bike.
What happens to salary deductions during Maternity or Sick Leave?
If the employee is absent from work during the period covered by the Hire Agreement, their salary reduction will remain in place and will apply to any pay received (including sick pay or maternity pay). By entering into the Hire Agreement the employee agrees that the amount of the monthly salary reduction may be deducted from any such payments.
However, this will not include statutory maternity or sick pay.
Statutory maternity pay is paid for the first 39 weeks of the employee's maternity leave. When an employee is on leave due to sickness, their normal pay ceases and is replaced by a sickness allowance. This allowance is made up of money from the employer, called Occupational Sick Pay (OSP) and money paid on behalf of the Inland Revenue/ Government called Statutory Sick Pay (SSP). Deductions for Cycle to Work would still be made from the OSP but not from SSP.
If the employee is temporarily not in receipt of salary payments for any reason, but remain an employee of the client, their Hire Agreement will remain in place and monthly reductions suspended until the earliest of the following events: the employee reverts to receiving salary payments, or they leave employment with the Employer.
If monthly reductions are suspended, the hire period will be extended by a period equivalent to the period during which monthly reductions were suspended.
More information can be found on the HMRC website and in this HMRC Cycle to Work guidance document.
Who owns the Cycle to Work equipment?
The legislation that governs a Cycle to Work scheme states that the employer must own the equipment.
According to the HMRC, there can be no automatic right for employees to own the equipment at the end of the agreement. Therefore a Cycle to Work scheme operates as a loan. The employer is technically loaning the equipment to the employee for a fixed period of time.
The loan agreement (technically a hire agreement under the Consumer Credit Act 1974 (CCA)) allows for ownership of the bike and equipment to pass to the employee via an option (Managed Extended Hire, P11D or Market Value). Doing any other specified act by either party to the agreement (such as simply giving the bike and equipment to the employee) will cause the resulting agreement to be a hire purchase agreement rather than a loan agreement, which in turn could remove the tax exemption available as it may be classed as a hire purchase rather than a loan agreement.
Furthermore, the employer may need to obtain a standard consumer credit licence from the OFT to enter into such an agreement since it would not be covered by the Cycle to Work group licence.
Although the employee does not actually own the equipment, they:
- are custodians of the equipment
- can benefit from any warranties
- are free to use it as they wish, providing it includes cycling to work
Employees cannot profit from, transfer, sell or dispose of the equipment.
They are not required to maintain records of cycle usage and there are no minimum use criteria; employees agree by signing the hire agreement that the main purpose of the bike is to cycle to work.
More information can be found on the HMRC website and in this HMRC Cycle to Work guidance document.
What accessories can employees apply for through Cycle to Work?
We wouldn’t encourage cycling without the proper safety equipment!
Have a look at the list below to see all of the safety equipment included in the RG Cycle to Work programme:
- Cycle helmets that conform to the European standard EN1078
- Reflective clothing
- Bells & bullhorns
- Luggage carriers & straps to ensure luggage is carried safely
- Lights, including dynamo packs
- White front reflectors and spoke reflectors
- Mirror & mudguards
- Cycle clips, dress guards & panniers
- Locks & chains so the bike is safely secured
- Pumps, puncture repair kits, tool kits and tyre sealant for minor repairs
- Child safety seat – in case they drop a child off on the way to work
Can an employee add their own funds to a Letter of Collection?
On June 14, the Department for Transport announced new guidelines for the Cycle to Work Scheme which clarified adding funds to a Letter of Collection:
No, employees are not allowed to use their own funds towards the cost of goods being hired under a consumer hire agreement. This, however, does not preclude the employee from separately buying additional equipment.
For example, if an employee had a Letter of Collection for £1,000 they could purchase any bike up to £1,000. In the same transaction, they can add their own funds to purchase any equipment they desire.
If they wanted to purchase a bike that cost £1,200 with the same Letter of Collection, they could not add £200 of their own funds to get that particular bike. They would need to make another choice.
You can read the most up to date guidelines here.
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