Knowledgebase: Pegasus Opera
Cycle to work Scheme
Posted by Conleth Overton, Last modified by Claire Craig on 16/06/17 14:59

Cycle to work Scheme

 

You as the employee will technically hire the bike over the hire period (usually 12 months).  These hire payments are deducted as a Salary sacrifice (prior to Income Tax and National Insurance contributions) therefore you pay less Tax and NI. 

 

Here’s an example of how the savings work during the hire period, assuming the following:

  • Employee is paid monthly
  • Employee is a standard rate tax payer requesting a £500 Certificate
  • The hire period is 12 months
  • The Employee’s monthly gross salary is £1,200.00 (£14.400 per annum) 

 

 

Salary before scheme participation

Salary during scheme participation

Monthly Gross Salary

£1,200.00

£1,200.00

Bike value including VAT Gross salary sacrifice total

  

£500.00 £500.00

MONTHLY GROSS SALARY SACRIFICE = £500 / 12 months (this amount appears on the hire agreement)

 

£41.66

Monthly Gross Salary after salary sacrifice Monthly NIC contribution (12%) Monthly income tax contribution (20%) Net Salary

£1,200.00 £144.00 £240.00 £816.00

£1,158.34 £139.00 £231.67 £787.67

MONTHLY NET SALARY REDUCTION

£816.00 minus £787.67=

£28.33

MONTHLY SAVING

£41.66 minus £28.33 =

£13.33

So, because the participants pay less income tax and NIC their NET salary reduction is less than the GROSS salary reduction, and this is how savings are achieved. In this example, the employee makes a £41.66 contribution to the employer, but it only costs them £28.33, resulting in a saving of £13.33 per month. At the end of the hire period the company may choose to offer the employee ownership of the bike for a market value payment, or the employee may pay a small deposit allowing them to remain in possession of the bike and continue to use it.

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