Ebikes and the Cycle2Work Scheme: How does it work?
The Cycle2Work Scheme is part of a Government initiative to encourage commuters to use more active forms of transport.
This financial incentive can be used for cycles and e-bikes, but not s-pedelecs, plus most of the associated equipment (from the bell to reflective clothing to modifications for disabled use to panniers to cycle clips / dress guards to helmets and so on). There is no upper limit on the price of the e-bike in the scheme, however, some employers who do not use third parties, may restrict it to £1000 to avoid the need to be FCA authorised. 50% or more of the journeys should be related to work (commuting, attending a client site, moving between sites or around large campuses).
There are three methods that an employer can use for the Cycle2Work Scheme:
- Salary sacrifice
- Interest free loan
- Pooled schemes
Salary sacrifice is the most tax efficient method for both employer (who save 13.8% employers NI and 0.5% apprenticeship levy) and the employee. It must, however, not take you below the National Minimum / Living Wage. In this method the employer hires the e-bike to the employee either directly or through a third party.
For example, if you were to hire a £1000 or £5000 e-bike in this manner then the monthly costs on a 12-month contract would be:
|Price of the bike||20% Tax Payer & 12% NI||40% Tax Payer & 2% NI|
|£1000||£56.67 monthly payment||£48.33|
|Total paid during 12 month hire||£680.04||£579.96|
|Government acceptable purchase price once 12 months lapsed: 25% as over £500 purchase price||£250||£250|
|Total cost for the bike||£930.04||£829.60|
|Total paid during 12 month hire||£3399.96||£2900.04|
|Government acceptable purchase price once 12 months lapsed: 25% as over £500 purchase price||£1000||£1000|
|Total cost for the bike||£4399.96||£3900.04|
Salary sacrifice is basically an interest free loan with a bubble payment. The number of months can vary, but 12 months is the minimum. The percentage for the purchase price of the bike after the hire reduces as the number of hire years goes up.
Interest Free Loans
Just as employers can offer interest free loans for season ticket purchases then they can also do so for the Cycle2Work scheme. However, if the e-bikes are over £1000 they will need to register with the FCA, so they may choose to opt for a £1000 cap instead.
A company can choose to offer pooled bikes that are available for employees to use to commute to and from work, to move between sites, or to attend local meetings.
To help you to save money on your e-cycling, encourage your employer to join more than 40,000 employers offering the Cycle2work scheme. You could join the 1.6million employees already benefitting from the scheme.
Unfortunately, this scheme is not available for the self-employed, but your accountant will be able to advise you on what is available for you.