What is the UK Cycle to Work Scheme?
The Cycle to Work Scheme is an initiative introduced in the Finance Act 1999 by the UK Government to promote healthier journeys to work and in doing so reduce environmental pollution. For someone in the UK looking to get a new bike the scheme has its attractions. Essentially for the initial 12 month period your company own the bike and you pay a salary sacrifice to cover the loan from your gross salary, there is no interest to pay and the salary sacrifice comes off gross salary, thus you don't pay Income Tax and National Insurance so a saving of between 32% and 42%!
How does it work?
Your Employer sets up a tax exempt loan scheme for its employees - That sounds like extra work for the finance and HR departments, but most employers use a third party provider such as CycleScheme or Cycle2Work who do most of the work for them.
Employees can get a voucher for up to £1000 to cover the cost of a new bike and necessary safety equipment such as helmet, mudguards, luggage and clothing. The employee then uses the voucher at a participating retailer to get a nice shiny new bike of their choice.
The employee pays back the value of the voucher over 12 months as an interest free salary sacrifice - and this is where the employee and employer saves money; the employee payment comes off your salary before tax and National Insurance, and the employer doesn't pay National Insurance on that sum either. So the employee can save between 32% and 42% off the voucher value; on a £1000 voucher they might actually only pay £580 back.
My experience with the scheme
I took up the scheme with my employer back in January to get a new 29er hardtail mountain bike, and am nearing the end of the 12 month initial period, at this stage I have 3 choices: I can hand the bike back (not really an option!), Pay a 'Fair Market Value' price to take ownership - usually 25% of the bike cost, or the third option is to pay a nominal deposit fee to continue the hire free of charge and at the end of this period you can return the bike and take back the deposit or take ownership of the bike at no extra cost other than the deposit paid earlier.
I will be taking the 3rd option as I believe most people would. The nominal fee is expected to be 7% of the bike cost so my bike cost £800 so I can expect to pay £56 for continued free hire and eventual transfer of ownership. So I will have payed 12x£43 plus the £56 so £572 total cost from net earnings on a £1000 voucher - a saving of £428.
Once the initial 12 month period is up you are able to take on a new loan, something I will be doing to get a fast road bike. Having tried this scheme I would recommend it as it's a good way to get a new bike, paying in interest free installments and saving at least 32%. I did look at a nearly new bike from an auction site but with the current interest in all things cycling in the UK, there is little difference in price between a 2nd user model and its new counterpart that includes a valid warranty.