Want to encourage your employees to be green and save NIC?

2nd August 2010

Not many employers know that there is a tax exemption which allows them to provide cycles and safety equipment to employees as a tax-free benefit. In addition employers benefit from National Insurance contribution savings so a company actually makes money on every bike purchased.

Cyclescheme is a part of the Government’s Green Transport Plan and it works by employers effectively buying bikes or safety equipment from selected independent stores and then hiring them to the employee. The employer can claim back the applicable VAT and the employee can repay the balance through a salary sacrifice arrangement.

Christina Nawrocki of Wellers Accountants comments: “A salary sacrifice is neither a deduction from salary or a charge on salary. The employee simply agrees to accept a lower amount of salary, usually in return for the employer providing some kind of non-cash benefit. For something like Cyclescheme there is a specific tax exemption so the employee can receive the bike free of tax instead of receiving salary on which tax and NIC would be payable.”

Based on a bike worth £500 over a period of 18 months the employee could sacrifice £6.41 per week from their gross salary. Net of tax and NICs this would be £4.42 for a basic rate tax payer and £3.78 for a higher rate tax payer.

The employer will save secondary class 1 NICs on that part of the employee’s gross salary sacrificed, generating employer NIC savings of £64 per employee.

The employee also has the option of buying the bike for a full market value at the end of the hire period.

Christina adds: “Employers can also save money by encouraging employees to cycle to meetings for which they are entitled to claim 20p per business mile as opposed to the usual 40p for cars up to 10,000 business miles.”

Just another option for your Sustainable Routes £1,000 grant? Or maybe, you will need to install bike sheds, showers...call us to see what you can spend your grant on.