As a chartered accountant, I spend a lot of time thinking about ways to boost the financial health of my clients. I’m also a keen cyclist, and about to embark on the cycle of my life as part of a team cycling from Edinburgh to Rome in early March, some 1800 miles, to raise funds for My Name’5 Doddie Foundation*.
I’ve always enjoyed cycling. Freedom and fresh air, marvellous scenery, the sheer joy of keeping fit and healthy. As I stepped up my training through the annual January DoddieAid fitness challenge, I was reminded of the government’s cycle to work initiative and thought how my clients could financially benefit from the scheme.
A recap for those who may not be aware of it. Cycle to Work was introduced in 1999 to encourage employees to give up the car and take the bike on short trips to work or at least for part of longer commutes.
Cycling offers substantial benefits: cheaper travel, better health, increased productivity, lower congestion, improved air quality, not to mention the significant indirect benefits it brings to the NHS and society.
According to the Cycle to Work Alliance, by 2019, the scheme involved over 40,000 employers and helped more than 1.6 million commuters cycle to work.
Who qualifies?
Employers of any size and from any sector can run a Cycle to Work scheme. However, tax and National Insurance (NI) benefits apply only to staff treated as employees for tax purposes.
The scheme doesn’t include the self-employed, but specialist tax advice is available for those who wish to use cycles for business purposes.
Under the scheme, employees hire cycles and/or safety equipment from their employer or a third party in return for a salary sacrifice, leading to financial benefits for both parties if the scheme meets relevant criteria.
How does it work?
An employee who opts for a salary sacrifice for a brand-new shiny bike will see their gross salary go down. However, they save on income tax and National Insurance, while employers reduce their NI bill. It’s a win-win situation.
For example, an employee earning £30,000 per year sacrifices £1,000 for a bike, reducing their gross salary to £29,000. However, the first £12,570 (personal allowance) of their income is tax-free, so they only pay income tax on £16,430 (£29,000 less £12,570), instead of on £17,430 (£30,000 less £12,570) before salary sacrifice.
Employee Example
| Gross Salary | £30,000 |
| Salary Sacrifice | £1,000 |
| New Gross Salary | £29,000 |
| Less Personal Allowance | (£12,570) |
| Income Tax on | £16,430 |
These tax reductions can lead to significant savings, especially for higher rate taxpayers. Exact savings depend on income tax bands and the value of the bike and equipment.
Staying with the above example, an employer’s NIC is also calculated on the reduced gross salary of £29,000, which would lead to substantial savings if multiple employees participated in the scheme.
An employer who typically pays 13.8 percent in NICs saves about £138 while VAT can also be reclaimed on the purchase of bikes and equipment. And although difficult to quantify, a healthier workforce reduces absenteeism and increases productivity which is good for the bottom line.
Implementing the scheme
Setting up a Cycle to Work scheme is easier than you might think. You can either manage it in-house or partner with a scheme provider. The key is to communicate the benefits to your employees and make the process as smooth as possible. Remember, the more employees who participate, the greater the savings for your business.
Implementing Cycle to Work benefits both employers and employees. In addition to the financial benefits, it promotes a healthier lifestyle and is good for the environment.
As a chartered accountant, my advice is always grounded in numbers, and the numbers here tell a compelling story. For further information and advice, employers can check the government website for detailed guidance on salary sacrifice and other aspects of the scheme.
For me, it’s time I was back on my bike preparing for the journey ahead – where all roads lead to Rome.
Footnote:
* If you are interested in supporting the My Name’5 Doddie Foundation to raise funds and awareness of the tragic disease that is Motor Neurone Disease, which sadly took the life of Scottish rugby legend Doddie Weir, then please follow the link: www.justgiving.com/team/specsavers-dundee-doddie5
In recent years, the Foundation has organised ‘DoddieAid’, an activity based fundraising campaign led by another Scotland rugby stalwart, Rob Wainwright, beginning each year on 1st January and running to the start of the 6 Nations Rugby tournament. I have always joined in with a mix of cycling, running and walking over and above what I would normally do at that time of year, clocking up the miles and raising money for the Foundation.
This year I have been persuaded to go one step further. The Foundation is organising an extraordinary fundraising event, beginning in Edinburgh around the 3rd of March 2024 and ending in Rome on 8th March 2024. We have formed a team of 8 cyclists to complete the route over five or six days, ending at the Stadio Olympico on the Friday before the Italy v Scotland 6 Nations rugby match. Through various channels, we have already raised sufficient sponsorship to cover the logical costs of this challenge, so all our efforts can now concentrate on fundraising for the charity.
In addition to our general fundraising (modern day bucket shaking) efforts, we are holding a Dinner Dance on 2nd February in Coupar Angus, where we will have both a raffle and auction. A list of auction items can be found on our Facebook page
Michael Fotheringham, Partner
James Milne Chartered Accountants