The cycle-to-work scheme is a tax incentive created to encourage companies' employees to ride bikes to work. This scheme was introduced originally back in 1999. This scheme has environmental and health benefits. As it encourages people to start riding a bike that can improve their health and helps to decrease the amount of air pollution.

The bases of the scheme are to allow employees to benefit from a long term loan of a bike and the bike riding equipment. For example locks, helmets and lights are completely free of tax.

How to take advantage of the cycle-to-work scheme?

To participate in the program, the limited company you work for will need to give you a voucher to you. You can purchase a bike at a higher value but this means you will have to make up the difference personally.

The legislation says ‘you need to be earning more than the National Minimum Wage after your loan repayment has been deducted’. That being said the system can only be financially beneficial to you if you don't have a low salary from the company.

Scheme Benefits for Employees and Employers

The overall benefits of the scheme can affect the employer and the employee. For the employee, this scheme can benefit you by reducing your income tax and National Insurance costs. For the employer, the cycle-to-work scheme can benefit them in two ways. One way is claiming back VAT on the whole purchase, i.e. the bike and equipment. The other is by reducing their employer's NI contributions due to the employee’s pay has decreased.

Who is allowed to use this scheme?

Whether you are a full time or part-time, or even a contracted employee, the system is available to all who have long-term employment that is more than the period of the loan. Normally employees who work less than 12 months or people who are self-employed can take part in the scheme.

Here is a list of requirements you need to hit to take part in the scheme:

• You have to pay tax in the UK via the PAYE system.
• Be over 18 years of age to comply with Consumer Credit Act legislation.
• Have exceeded the employer's probationary period if they are applicable.
• Earning more than the National Minimum Wage after your loan repayment has been deducted.

Salary sacrifice arrangement how are savings made.

A salary sacrifice happens when you give up your right to receive part of your pay. In exchange for the employer to agree to provide some form of non-cash benefit. In the case of the cycle to work scheme, a loan of a bike and related bike equipment.

You pay back the loan on your goods from gross rather than net pay for your hire period. This is how you benefit from Income Tax and National Insurance relief.