Bike to work scheme
How the bike to work scheme works
To take part in the bike to work scheme you must agree to a reduction in your salary over a fixed period (12 months) equal to the cost, to the University, of providing the bike and equipment selected. You do not pay tax or National Insurance on this benefit.
Please note that although you do not have legal ownership of the equipment during the 12 month hire agreement it will be your responsibility to adequately insure the bicycle.
The scheme works because under current legislation the provision of a bike and equipment on a hire basis through a cycle scheme does not give rise to a taxable benefit in kind. In effect the employee swaps taxable pay for non-taxable pay (the amount being equal to the hire value of the cycle and accessories) resulting in savings in tax and NI. The University meets the qualifying conditions laid down by the Department for Transport.
There is a potential tax and NI saving to you (the amount depending on your level of pay and your tax and NI status) and the University also makes a saving on NI that will help pay for the operation of the scheme. Because the scheme depends on tax savings it is therefore only suitable if you pay tax on your University salary.
Please visit the Cyclescheme website where you will find in-depth details and FAQs regarding many more aspects of the scheme.
Ownership: who actually owns the bike?
During the 12 month hire agreement the bike and safety equipment remain the property of the University.
However, at the end of the 12 month hire agreement the University may seek to dispose of the bike and safety equipment at a fair market value.
The fair market value cannot be stated before or during the scheme as this could be considered a benefit in kind as hire-purchase does not warrant any tax-relief.
What is the fair market value payment?
A fair market value payment is the amount that a willing buyer would pay to a willing seller to purchase certain property at a particular point in time.
HMRC have now clearly set out how an employer should identify the fair market value of a bike and as such, the price at which the University may seek to dispose of the bike.
From 1 May 2011, the University will be implementing the guidelines from HMRC.
Setting the fair market value
The fair market value of a bike will be calculated by the University using the Valuation Table below which has been produced by HMRC.
How much can I save?
This is an example of how savings are made for basic and higher rate tax payers on a £1000 bike package hired over a 12 month period:
|Gross Monthly reduction||£16.67||£25.00||£33.33||£41.67||£50.00||£58.33||£66.67||£75.00||£88.33|
Basic rate taxpayer
|Tax Saving **||£3.33||£5.00||£6.67||£8.33||£10.00||£11.67||£13.33||£15.00||£16.67|
|National Insurance Savings ***||£1.57||£2.35||£3.13||£3.92||£4.70||£5.48||£6.27||£7.05||£7.83|
|Net cost per month||£11.77||£17.65||£23.53||£29.42||£35.30||£41.18||£47.07||£52.95||£58.83|
|Total cost over 12 months||£141.20||£211.80||£282.40||£353.00||£423.60||£494.20||£564.80||£635.40||£706.00|
|Total saving made||£58.80||£88.20||£117.60||£147.00||£176.40||£205.80||£235.20||£264.60||£294.00|
Higher rate taxpayer
|Tax saving **||£6.67||£10.00||£13.33||£16.67||£20.00||£23.33||£26.67||£30.00||£33.33|
|National Insurance Savings ***||£0.17||£0.25||£0.33||£0.42||£0.50||£0.58||£0.67||£0.75||£0.83|
|Net cost per month||£9.83||£14.75||£19.67||£24.58||£29.50||£34.42||£39.33||£44.25||£49.17|
|Total cost over 12 months||£118.00||£177.00||£236.00||£295.00||£354.00||£413.00||£472.00||£531.00||£590.00|
|Total saving made||£82.00||£123.00||£164.00||£205.00||£246.00||£287.00||£328.00||£369.00||£410.00|
- Costs included can be used as a guide only, and may vary subject to personal taxation.
- * Savings will be affected by you personal level of taxation
- ** Assumes 20% Tax Rate
- *** Assumes 9.4% Employee NIC Rate
- **** Assumes 40% Tax Rate
- ***** Assumes 1% Employee NIC Rate
|Age of cycle||Acceptable disposal value percentage|
|Original price of the cycle (less) than £500||Original price £500+|
|6 years and over||Negligible||Negligible|
How to use the valuation table
The fair market value is calculated on the original cost of the bike plus any safety equipment bought at the time of purchase which is fitted to the bike (e.g lights and bike bells). Calculating the fair market value excludes any safety items which are worn by the cyclist for example, a helmet or cycle clothing which may have been purchased at the time.
The market value is calculated as below:
For example, if the original price net of VAT was £400, then with the VAT rate at 20%, the acceptable market value at 2 years old will be £62.40.
(£400 × 13%) + (VAT at 20% × £52) = £52 + £10.40 = £62.40.
Ceasing employment during the scheme
If you were to cease employment before the end of the hire agreement, the outstanding balance will be repayable immediately and, if possible, it will be deducted from your last net salary payment. This means that you will not get Tax and National Insurance savings on any outstanding balance.
Why is my pay reduced to cover the costs? Isn’t this just paying by instalments?
The scheme works by something called salary sacrifice. This means you agree to give up some of your pay for a period of time. Although this sounds more complicated than paying by instalments, as you would if you paid through a normal hire purchase agreement, the advantage is that you ‘pay’ from your wages before tax and NI are calculated and therefore save on tax and NI. This means you get a better deal because you are not paying tax and NI on that part of your wages used for your payments for the scheme. It’s one reason why this scheme is a good deal.
Why are the deductions shown on my payslip equal to the full cost of the bike?
The way salary sacrifice works is that the total value of the bike is deducted from your gross salary so that you do not pay tax or NI on the amount you have "sacrificed". Therefore the total deductions shown on your payslip will match the total value of the bicycle, but you are paying less tax and NI than you would normally do.
Why does the hire agreement show a much lower saving than expected?
The salary exchange amount shown on the hire agreement states that it will come from the gross salary - before any tax or NI has come off - meaning that the amount of tax and NI that will be paid is reduced (as PAYE and NI are calculated as a percent of salary). Cyclescheme is unable to put the actual (net) amount that will be deducted, as we do not know how much tax each individual pays. The easiest way to establish the near-exact monthly savings can be found on Cycleschemes savings calculator.
What about VAT savings?
You may have seen some schemes advertising bigger savings because they also deduct VAT. The University’s finance office has advised that our status does not allow VAT recovery under this scheme.
Transfer of ownership
During the last month of the Hire Agreement period the University will contact you to give you the opportunity to choose one of three options:
- Option 1: You can choose to continue to loan the bike from the University. In this instance, the bike will remain the property of the University and no further hire charges will be made; OR
- Option 2: You can purchase the bike at the fair market value which will be calculated as described in the Valuation Table above; OR
- Option 3: Return the bike and safety equipment to the Estates Department.
Where a bike is transferred to an employee at a point between the time periods shown in the Valuation Table, the percentage shown in the table will be adapted on a sliding scale down to the next year.
If you cease employment at the University within six years of the original purchase date of the bike then you will have the option to take ownership of the bike but you will need to pay the amount as advised in the Valuation Table above.
There is no obligation to take ownership of the bike and equipment, however should a member of staff choose not to then they must return the equipment to the Estates Department.
Buying a bike
- Bikes can be bought from Fife Cycles in Leuchars, who have a wide range of bikes available. See http://www.fifecycles.co.uk/catalog/
- Refurbished second hand bikes can be bought from BikeWorks in Glenrothes
- Keep your bike in good condition. Simple bike maintenance like keeping your chain clean and oiled can prevent more serious problems from developing.
Cycling around St Andrews
- We have produced a Walking and Cycling Map (PDF, 102 KB) showing cycle lanes and bike racks around the town and university.
- The University have Abandoned Bike Policy (PDF, 572 KB)Abandoned Bicycle Policy 2009 (PDF, 74 KB) to address the issue of abandoned bicycles on campus and to ensure that the facilities that are currently provided are being used efficiently before new ones are installed.
- A new set of procedures have been drafted, backed up by a set of Cycle Parking Regulations (PDF, 364 KB) which are in the process of being fixed/displayed at all University Cycle Parking Facilities.
- The University has a limited number of bike lockers available in Butts Wynd. As from October 2008, these lockers are available to staff on an annual basis. These lockers provide a high level of security for staff with valuable bikes, who cycle regularly. Due to the limited number of lockers available, lockers cannot be allocated to all interested staff. Ataff must apply for a locker. Periodic checks of the lockers may be carried out, and the University reserves the right to reclaim lockers that are not being used regularly, and to reallocated these.
- The University has recently purchased its first electric bike! This is being used by Estates staff to travel around town.