The legal issues involved in running the scheme may seem a little daunting at first, however Halfords makes this process as simple as possible to understand. Here are some of the more important questions that employers often ask when joining the scheme.
1. What is legal compliance?
The Halfords cycle2work scheme is Consumer Credit Act (CCA) regulated, operating under a scheme specific group licence held by the Office of Fair Trading (OFT). There is no requirement for pre-approval or sign-off of collateral by the OFT. Halfords can confirm that the Halfords cycle2work scheme is fully compliant. All documentation is subject to regular review by our legal team to ensure adherence to the requirements of the CCA.
HMRC are becoming more vigilant, ensuring that the original message and purpose of the scheme is being observed by providers. Latest HMRC clarification indicates that the scheme must be available to employees generally with no groups of employee excluded.
Halfords, is working closely with a leading firm of tax advisers and HMRC Policy Division to secure agreement that the Halfords cycle2work scheme is fully compliant with the appropriate legislative requirements.
2. What is a salary sacrifice?
This is where an employee agrees to sacrifice a portion of their salary in return for a non-cash benefit, such as bikes and accessories under the cycle2work scheme. Deductions are made from an employee's gross salary (prior to tax and NI contributions), which means the employee is effectively putting this amount towards the cost of the bike instead. It is also beneficial to the employer since they save on National Insurance contributions.
3. What is a hire agreement?
A hire agreement is automatically populated with an employee's details from the secure website when they sign up for the scheme. It is then printed, signed and sent to HR for approval. This document reflects the conditions of hire between the employer and the employee, and lays down the employee's payment responsibilities. Because salary sacrifice alters an employee's original employment contract, it becomes an integral part of the process.
4. What is a supply agreement?
This is an agreement between Halfords and an employer, defining the terms of the cycle2work provision. This incorporates a finance provision where required.
5. What is the End of Hire Term Process?
By nature of the scheme, employers lease the cycles and accessories to employees over a fixed Hire term. Were the employer to state their intention to transfer the ownership of the assets to the employees during the course of the Hire Term, it would then become a Hire Purchase agreement, in which case the tax exception would not be available.
The employer can, however, make a decision nearer the end of the Hire Term and decide to offer their asset for sale to the employee. When this happens, the assets should be offered for sale at 'A Fair Market Value' and an employer should take reasonable steps to determine what is 'a fair market value'. Halfords can help an employer with this process.
6. What is the £1,000 threshold?
Employees can only sacrifice up to £1,000 in any scheme term. This is because the scheme is a Consumer Credit Act (CCA) regulated agreement, operating under a scheme-specific group licence held by the Office of Fair Trading (OFT). Under the licence, employers can extend credit to employees up to a value of £1000 without needing special permission.
Halfords cycle2work does not allow employees to 'top up' or add to their Letter of Collection (LoC) using their own funds in-store, as both employee and employer would then jointly own the bike. This could create a potential conflict of interest when it comes to the end of the hire period.
7. Who is eligible for the scheme?
Employers of all sizes across the public, private and voluntary sectors can implement a tax-exempt loan scheme for their employees. To maximize the benefit of implementation, it is desirable that participation in a scheme should be as broad as possible. 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.
8. What is an election window?
Most organisations run their schemes in election windows. These are defined timescales during which time an employee can apply (e.g. 6 weeks). This can help manage payroll deductions, as well as providing a focus for marketing and promotions to help increase take-up. Two or three election windows can be held each year. Halfords will invoice an employer for the total cost of the LoC's issued in any given election window.
Alternatively, an organisation may allow employees to sign up whenever they like during the course of the year. Halfords would invoice on a monthly basis for LoC's issued.
9. The financials
An organisation will purchase bikes and accessories from Halfords, which are then leased to employees. Whilst the cost of the bikes and accessories is recouped via salary sacrifice reductions, an organisation would pay Halfords for the initial cost of bikes and accessories.
Option 1– Capital Expenditure
This method is used when an organisation chooses to pay Halfords for the cycles and accessories loaned to employees using its own funds. Where an organisation chooses to run their scheme via election windows, Halfords would invoice the organisation when the election window closes for the total value of LoC's issued to employees during the window. However, if an employer opts for a rolling/annual scheme, we would simply invoice on a monthly basis for LoC's issued that month.
The organisation would then recoup this cost in full through salary sacrifice allowing the scheme to remain cost-neutral. Our standard payment terms are 30 days.
Option 2 – Finance Provider
If the employer does not wish to fund the scheme through its own expenditure, a popular option is to use a finance provider. A finance provider would charge for its services, however it is usual to pass this cost back to the employee through salary sacrifice so that the scheme remains cost-neutral for the employer. Halfords already works with a number of finance providers and can provide quotations.