TAX BENEFIT
CYCLE
SCHEME
Terms and Conditions
and
Frequently Asked Questions
(Revised May 2011)
Introduction
The University offers/supports a tax benefit cycle scheme as part of its Positive Working
Environment initiative and Travel Plan. The Government’s Green Travel Plan legislation allows
employers to offer their staff beneficial tax-relief schemes operated through payroll.
Tax-exempt cycle schemes aim to increase the number of people cycling to work. Employees
have the chance to hire the latest cycle equipment at a good price which is paid for by rental
instalments directly deducted from their pay.
Benefits of the cycle scheme
It is in the interest of most employers to help improve the fitness of their workforce and to make
access to work by cycle an attractive prospect. The University of Bristol is no different and we
already have a strong Travel Plan that encourages alternatives to single car occupancy. The real
benefit is to the employee who has access to the latest cycles and cycle safety equipment at the
lowest cost possible. The cycle must primarily be used for cycling to work but this does not stop
staff using it for leisure activities out of work time.
Employer cycle schemes are gaining popularity throughout the country and most, if not all, cycle
retailers will be aware of the principles of the scheme and be able to accommodate a University of
Bristol staff member’s request. The University has decided to implement its own cycle scheme as
this will offer employees the greatest amount of choice and flexibility.
This means regardless of where you live or work you can choose the cycle supplier convenient to
you. You can also select the bike make and model of your choice rather than be restricted to a
list of preferred cycles. All that is required is for the cycle retailer of your choice to issue you with
a written quotation for the equipment you have chosen when you apply to join the scheme.
How the scheme works
Staff electing to join the scheme will be able to obtain a cycle and cycle safety equipment (e.g.
helmet, lock or reflective clothing) up to a total value of £800 inclusive of VAT. In exchange for
the value of the goods chosen the member of staff is subject to a reduction in their basic pay of
the same amount. The amount of reduced pay is no longer subject to tax or National Insurance,
so in effect the loan is tax and NI free.
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.
General Terms and Conditions
Eligibility
All full time and part time employees (both weekly and monthly paid) who are subject to UK
Income Tax and who have been in continuous employment of The University of Bristol are eligible
to join the scheme. If you already are a member of the previous interest free loan cycle purchase
scheme then you are not eligible to join this tax benefit scheme until the former loan is fully
repaid.
Any staff member under the age of 18 will need to have a guarantor before they will be able to
enter into the scheme.
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Any staff member interested in the scheme, who would find their rate of pay dropping below
national minimum wage, would be provided with a ‘pool bike’ to use to commute to work.
Choice of equipment available through the scheme
You can choose the bike and cycle accessories of your choice but all must be purchased in one
single transaction and must not exceed the value of £800 (including VAT). Eligible equipment in
addition to the bike could include cycle helmet, clothing, mudguards, lights, locks, cycle tools,
pannier rack and pannier bags.
The tax exemption defines a “cycle” as a ‘bicycle, a tricycle, or a cycle having four or more
wheels, not being in any case a motor vehicle’ (192(1) of the Road Traffic Act 1988 (c.52)). An
electrically assisted pedal cycle is allowable under the scheme
Costs and savings
The tax and NI saving per employee is dependent on individual tax and NI circumstances.
Broadly speaking, every employee falls into one of two categories. The figures shown below are
illustrative only, as circumstances will vary from person to person. The figures reflect the fact that
the University of Bristol, under the terms of the scheme, is loaning cycle equipment to a maximum
value of £800 over a period of 12 months.
Basic rate tax payer
• Up to 20% of salary reduction is a tax saving
• Up to 12% of salary reduction is a NI saving (this will only be 10.4% if you are in an employer
provided pension scheme)
• Maximum saving on a £800 cycle loan is £256.00
Higher rate tax payer
• Up to 40% of salary reduction is a tax saving
• 2% of salary reduction is a NI saving
• Maximum saving on a £800 loan is £336.00
N.B: NI may change annually
The University of Bristol will divide the total value of the equipment by 12 equal shares and
reduce your annual gross salary from the month after you have been accepted onto the scheme.
This reduction will be reflected on your payslip until the end of the 12-month term. So for instance
if you are a basic rate tax payer and have selected a £800 total sacrifice value the monthly salary
sacrifice deduction is as follows;
Retail value (including VAT)
Monthly reduction in gross pay over 12 months (£800 ÷ 12)
Less Tax (20%) and National Insurance (12%)
Net cost each month
Net cost over 12 months
Percentage saving
Overall saving
£800
£66.67
£21.33
£45.34
£544.08
32%
£255.92
Salary Sacrifice
Your gross annual salary will be reduced by the amount of the monthly/weekly payments that the
University of Bristol has made on the cycle equipment you have chosen. The system of reducing
your basic pay is known as salary sacrifice.
Cycle and equipment ownership
You will have full use of the cycle and cycle accessories obtained through the scheme, but in
order to obtain the tax advantages it is a requirement that ownership of the equipment remains
with the University of Bristol. Although the cycle remains the property of the University, it is your
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responsibility to keep it safe and secure. We recommend that you take out appropriate insurance.
If the cycle goes missing or is stolen during the hire period your repayments will continue for the
full duration of the agreed payment period.
The scheme offers cycles and cycle safety equipment as the following link from HMRC web
indicates:
<http://www.hmrc.gov.uk/manuals/eimanual/EIM21664.htm>
Arrangements at the end of the 12 month loan period
At the end of the 12 month loan period your salary will revert to the level it would have been had
you not participated in the scheme.
To make the scheme effective from a tax perspective all payments made over the twelve-month
period are for the loan of the bike and equipment. However at the end of the period the University
of Bristol can sell it to you as a deduction from your net salary.
Should the goods be offered for sale at the end of the rental period employers are required to use
the HMRC valuation table and guidance which indicates chargeable goods will be the cycle plus
any attached safety equipment:
<http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm>
Pension issues
The exact implications of joining the cycle scheme will vary depending on which pension scheme
you belong to.
The scheme is based on employees taking a salary reduction in return for a loan of cycle
equipment and accessories. The saving arises from the reduction in tax, employers NI and, in
some cases, employees NI. The reduction in salary could have implications on pensions.
The University treats the salary reduction in such a way that you have a notional salary (i.e. the
salary before the reduction) and an actual salary (i.e. the one that you are paid after the
reduction). Your payslip will show your notional salary as your annual salary, but you will then see
a monthly cycle scheme deduction to arrive at your actual monthly gross pay.
Universities Superannuation Scheme (USS)
USS recognises notional salaries. This means that cycle scheme has no impact on your pension
entitlements or contributions. Your USS contribution will be calculated on your notional salary,
and your pension rights (including death in service entitlements) will be calculated on your
notional salary.
University of Bristol Pension and Assurance Scheme (UBPAS)
UBPAS adopts the same approach as USS so the cycle scheme will have no impact on your
pension contributions or entitlements.
National Health Service Scheme (NHS)
The NHS does not recognise notional salaries. This means you will pay contributions on your
actual salary, i.e. your contributions will reduce in line with your salary reduction.
Additional Voluntary Contributions (AVCs)
Some members of staff pay AVCs from their monthly salary. AVCs are calculated as a
percentage of gross pay. If you join the scheme and are in USS or UBPAS, AVCs will be
calculated on your notional salary, so the amount you pay will not change as a result of joining the
scheme. If you are in the NHS scheme you should take advice from the Pensions section.
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Application Process
Step 1
Complete an application form
- ask for one from the salaries office (telephone numbers on page 7) or
- download one from the web
< www.bristol.ac.uk/environment/transport/taxbenefit>
Step 2
Visit your chosen cycle supplier, explain that you are taking up a University of
Bristol cycle tax savings scheme and choose the equipment you would like
(minimum value £100 maximum value £800 inc VAT). Ask your cycle
supplier to provide you with a detailed written quotation for the equipment you
have selected. Submit this quotation along with the completed application
form to the Payroll Office.
Step 3
Two copies of a personalised Loan Agreement will be prepared and you will
be asked to visit the Payroll Office on the 4th Floor of Senate House. You
must sign both copies of the Loan Agreement in the presence of a member of
the Finance Office staff; they will witness the signature and countersign the
documents. They will file one copy of the documents and return a copy to you
(this is to comply with the Consumer Credit Act 1974).
Step 4
You will be given a cheque made payable to your chosen cycle retailer. You
should take this with you when you go to collect your cycle. Do this as soon
as possible because salary deductions will commence the next payday after
the cheque is issued.
FREQUENTLY ASKED QUESTIONS
Q1. If I sign up to the scheme will I have to go through credit checks?
No. This is because you are not borrowing money at any time, as although you have exclusive
use of the cycle equipment, technically it doesn’t belong to you but is on loan from the
University of Bristol.
Q2. Can I have more than one cycle at a time?
You can only enter into one 12-month loan agreement at a time, to a total maximum value of
£800 (including VAT). If you choose to use this to purchase two cycles up to this value, for
example if you need a cycle at each end of your train journey, then this is up to you.
Q3. Can I choose whichever cycle I want?
Yes. The choice of bike or supplier is up to you, providing your chosen cycle supplier is able to
provide you with a written quotation. The maximum amount available under this scheme is
£800 (including VAT); if you want to select equipment costing more than this you can pay the
difference yourself, direct to the cycle shop. See Q20 regarding VAT savings.
Q.4 Can I use an internet cycle supplier?
You can select a bike from an internet supplier, providing they can give you a written quotation
in advance and they will accept payment from the University in the form of a cheque. Be
aware that buying a bike over the internet has some limitations – for example not getting
advice on what bike best suits your needs. Many bike shops offer free servicing during the first
year following purchase, which you wouldn’t get from an internet supplier.
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Q5. Does it matter what I use the cycle for?
Yes. A condition of the scheme is that the cycles obtained through the scheme are intended
for travel to work purposes.
Q6. Do I need to be a first time cyclist?
No, if you already have a cycle you could use the scheme to upgrade or replace it.
Q7. What happens if the cycle or accessories get stolen or damaged?
The onus is on you to insure the bicycle from point of collection until the end of the loan
period. The University of Bristol will not have insurance for the equipment, as this would
involve extra cost to the employee. For many employees the equipment will already be
included in their home contents insurance policy, but it is your responsibility to check that
cover extends to the full value of the cycle. You are responsible for the security of the
equipment and if it is stolen you will have to continue with the salary sacrifice until the loan
period would have finished, so it is wise to ensure that the equipment is insured. Any loss or
damage (not covered by Standard Warranty) will also need to be paid for by you. The
University recommends that all employees contact their home insurance broker to check that
the equipment is included in the home insurance policy. There are three likely scenarios:
i) It is covered, and therefore no action is necessary
ii) It is covered, but it needs to be identified separately due to its value
iii) It is not covered, and a small additional premium may be payable
Alternatively, you could arrange separate cycle insurance through an agent, for example The
Cyclists Touring Club.
Q8. 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.
Q9. What effect will this have on my payslip?
Your payslip will continue to show your current pay as your annual salary, i.e. before the
reduction. The University will operate a system of ‘notional’ salary (what your salary would be
if you were not in the scheme) and ‘actual’ salary (taking into account the pay reduction). Your
payslip will continue to show the notional salary and the pay sacrifice. The monthly/weekly
value of the hire of the equipment will be shown as a payroll deduction to your monthly/weekly
gross pay.
Q10. Will participating in the scheme affect my pension?
For many staff there is potentially no impact but for some, membership of the cycle scheme
will affect their pension entitlement. This will depend on the pension scheme that the member
of staff belongs to and on individual circumstances. The University of Bristol therefore advises
staff to carefully read the earlier section concerning pension issues.
Q11. Will participating in the scheme impact on my variable pay?
Payment for holiday pay and overtime pay will continue to be based on your salary before the
salary sacrifice deduction is made.
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Q12. What will happen if I have a pay award, promotion or other increment?
Any future pay awards, increments or promotions will be based on your current annual salary,
i.e. before the reduction. Any increments will increase your notional salary and, when you
leave the scheme, your actual salary will revert to the level of your notional salary - so you will
not lose out.
Q13. Will participating in the scheme impact on other salary related payments?
Your reduced income may have an impact on the following:
Statutory maternity pay
Employees with sufficient service and who meet certain other conditions may be entitled to
statutory payments during a portion of maternity leave, which will be affected by participation
in the cycle scheme. Although statutory maternity pay is a flat rate for part of the qualifying
period, the first 6 weeks are usually paid at a rate of 90% of average weekly earnings.
Statutory redundancy and termination payments
Employees with sufficient service and who meet certain other conditions may be entitled to
statutory payments on redundancy. Any such statutory payments could be affected by
participation in the cycle scheme. It is not anticipated that this would affect many employees
but the impact of membership of the cycle scheme would be considered as part of the
arrangements for redundancy and termination payments.
Child Support Agency assessments
The Child Support Agency use complex formulae to assess the income of both parents
when calculating child maintenance assessments. Therefore, participating in the Cycle Tax
Benefit Scheme may impact on the amount of any such child maintenance assessment.
Other deductions linked to base salary
Staff who are the subject of Attachment of Earnings Orders issued through the Court
System should note that payments made under the cycle scheme, through a salary sacrifice
scheme, are deducted from pay before payments due under Attachment of Earnings Orders
are calculated.
Q14. What if I find I can’t afford to carry on with the scheme?
The rules set by the Inland Revenue are that once you have agreed to a salary sacrifice for
the period of the loan of the cycle, you do not have the option to revert back to the original
salary until the loan period is up. So, if you agree to the loan for 12 months, you cannot go
back to your original salary for the 12 months whilst the scheme is in place.
Q15. What happens if I change my mind after joining the scheme?
Under the unique terms and conditions of the scheme, other than the initial 7 day ‘Right to
Cancel’ period, it is not possible for you to cancel the loan agreement even though this is a
regulated consumer hire agreement covered by the Consumer Credit Act 1974. You therefore
will be committed to making the salary sacrifice for the full duration of the loan period, i.e. 12
months. If your employment is terminated during the loan period you will be liable to make all
of the payments identified in your loan agreement. This means that you must be sure you are
happy entering the scheme and the selection of equipment you have made. Staff employed on
Fixed Term Contracts should pay particular attention to the implications of this requirement.
Q16. What happens if I am off on maternity/paternity/adoption leave for part of the agreement
period?
You will continue to have the cycle equipment on loan during your absence and your gross
salary will still be at the reduced level according to the sacrifice arrangements. However, the
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contributions may be suspended by agreement with the University of Bristol. The balance
outstanding would then be recovered through the remaining payments upon your return to
work.
Q17. What happens if I leave the University of Bristol before the end of the 12-month agreement?
An employee who leaves for any reason will have to purchase the equipment for an amount
equivalent to the monthly gross salary deductions remaining in the 12-month agreement. To
clarify, the value will be equal to your gross salary reduction per month multiplied by the
number of months remaining to the end of the Term. Thus, if the monthly rental value is £20
and you left after 6 months, the balancing 6 payments of £20 would be deducted from the final
payment of salary. This deduction will be from net pay.
Q18. What happens when my payments finish?
To make the scheme effective from a tax perspective, all payments made over the 12-month
period are for the loan of the cycle equipment. At the end of the minimum period of hire or
upon termination you must be ready to surrender the cycle equipment to us no later than 7
days following the expiration of the hire period or date of termination. However, the University
of Bristol may be looking to dispose of this equipment at the end of the loan period and could
sell it to you following the HRMC Valuation Table Guidelines at that time. This would be
payable from your net pay The payment is in addition to the total amount you have paid in
salary sacrifice over the 12 months.
HMRC Valuation Table guidelines <http://www.hmrc.gov.uk/manuals/eimanual/eim21667a.htm>
Q19. What effect will the scheme have if I need a mortgage reference?
You should quote your current annual salary on mortgage applications as your payslip will
show this figure as your annual salary. If the University Payroll Team receives requests for
mortgage references from lenders they will quote your current salary, i.e. before the reduction.
Q20. 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.
Q21. Other queries not covered
Any other queries should be made to the Finance (telephone numbers below). Please note
that this applies to queries relating to the salary sacrifice element of the scheme and the
impact on your tax and NI. Queries relating to cycle selection, cycle use or warranty should be
referred to your local bike shop. More information about the University travel plan and ways
the University seeks to encourage staff to cycle to work is available at
<www.bristol.ac.uk/environment/transport/cycling>.
CONTACTS WITHIN PAYROLL
Angela Curnow: 95 46375
Paul Hobden: 95 46376
Chris Iles: 95 46374
Tracy Porter: 92 8886
Neil Grima: 92 88071
Jo Hayman: 92 88097
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