What is Cycle2Work?

The UK government is keen to encourage use of more sustainable "greener" modes of transport, so under section 244 of the Income Tax (Earnings and Pensions) Act 2003 they introduced substantial tax breaks for employees who are provided with bicycles and cycling safety equipment by their employer, to be used mainly for cycling to work. The employee benefits from Income Tax and NIC savings on the provision and the employer also saves their Secondary Class 1 NICs contribution. Halfords has lead the way in developing its Cycle2Work scheme and organisations throughout the UK have been benefiting from it since inception.

Employees who take advantage of Cycle2Work can obtain a bicycle and cycling safety equipment at up to 50% less than the equivalent high street cost.

How Cycle2Work operates
The regulations governing Cycle2Work are quite complex and, to ensure the tax benefits are obtained, need to be followed properly. The good news is that this is all done automatically for you within this site but for your understanding this is what happens when your company decides to implement a Cycle2Work scheme:

1. Your company either buys new bicycles and cycling safety equipment from Halfords or lease them via a third party finance provider. These items are then leased to participating employees. Some, often larger companies, choose to lease the equipment for cash flow reasons, because the bigger the employee base the greater the likely take up. Therefore using a third party finance company means they pay upfront and you pay back the lease on a monthly basis, rather than paying Halfords for the total value from the start. However you can buy them directly if you wish.
2. Where the employer uses Salary Sacrifice as a method for recouping these costs, a Hire Agreement regulated by the Consumer Credit Act must be used, the provision of which is within this site.
3. The Hire Agreement – an agreement between you as an employer and your employees, sets out the pay periodic hire charge to be paid by your employees.
4. The employee hire charge exactly matches the total leasing charge paid by your company, meaning Cycle2Work is cost neutral for your business. Moreover, you save on Employer's National Insurance contributions so you will actually gain financially by offering Cycle2Work.
5. The employees pay the hire charge by making a salary sacrifice which means they agree to forgo some of their Gross salary in return for this cash free benefit.
6. To gain the tax benefit and avoid a benefit in kind, employees can neither own the equipment during the hire period, nor have an automatic or contractual right to own the equipment at the end of the hire period. Therefore, the agreement is a Hire Agreement and not a Hire Purchase Agreement.
7. However, the finance company will appoint you as their agent to dispose of the equipment at the end of the hire and you may then elect to sell it to the employee for its fair market value. If you decided to buy the equipment from the finance company then you simply dispose of it to your employees for the same fair market value.
8. Schemes are normally run over 18 months so that the monthly costs are reasonable. However some organisations choose to run it over 12 months, so that it can sit within a Flexible Benefits scheme.
9. Normally you would also need a Consumer Credit Licence to write Hire Agreements but the Office of Fair Trading (OFT) has issued a group licence which authorises all employers to run Cycle2Work schemes without each employer applying for an individual licence. You can download a copy of the licence here, if you wish.
10. Although this might sound complex, we have created all the documents you need and built the process so that you will automatically comply with all the regulations.

Don't be put off! Cycle2Work regulations may seem complex but we've made implementing a scheme very simple.

Buying the bicycles and cycling safety equipment
Rather than leasing the equipment, if you don't have an issue with cash flow, it is possible for you to buy the bicycles and cycling safety equipment.

What's in it for you?
It's not hard to see what's in it for the employee; the opportunity to obtain a brand new bicycle and cycling safety equipment with savings of up to half price. Cycle2Work schemes also have a range of benefits for you as an employer, including:

• National Insurance Contributions savings
• Higher levels of staff morale
• Increased productivity
• Increased employee health and wellbeing
• Contribution towards an environmental policy
• Helps to achieve a Green Transport Plan
• Frees up valuable Car Parking Spaces
• VAT savings

How much can my employees have?
There is no maximum tax-free allowance for loaned bicycle and cycling safety equipment, however the Group Cycle2Work Consumer Credit License limits you to offering your employees a maximum of £1000 inc VAT. This can be increased provided you have an appropriate Consumer Credit License in place.

By clicking on the link below you can view the Department for Transport's (DfT's) official guidance on running a Cycle2Work scheme. Halfords was part of the group involved in writing this guidance, hence your scheme will comply with this guidance.
Click here to read the document.

What can my employees have?
Click here and have a look.