Salary Sacrifice Arrangement For The Cycle To Work Scheme
Participation in the cycle to work scheme is advantageous for the employer and the employee
. Introduced as part of the Governments Green Transport Plan, this scheme provides tax benefits to both the employer and the employee. Along with the monetary benefits, it offers health benefits for the employees and environmental benefits as well.
As per the
cyclescheme, an employer buys bicycles and cycling safety equipment and loans them to the employees. The employer recovers part of the price with the salary sacrifice arrangement. This arrangement plays a crucial role in the success of the scheme. For an effective arrangement for tax and National Insurance, the following are necessary.
The employee must give up the potential future salary before it is considered as received for purposes related to tax and NICs
The employee is entitled to lower cash salary along with the bicycle and cycling safety equipment, the benefit in kind, as per the contractual arrangement
There are a few things to focus on, when creating the salary sacrifice arrangement, for it to be effective.
Is the salary of the employee adequate for participation in the scheme? The scheme needs to be available for all employees across an organisation to avail of the tax benefits. However, for this, it is necessary to make sure that the salary of the employees does not go below the National Minimum Wage due to the salary sacrifice.
If the salary of the employees is going below this level with the arrangement, those employees may not be eligible for the scheme. However, if the employer offers a lower bicycle package or an extended loan period, this may be possible. It is necessary to consider the possible solutions for this.
Does participation in the scheme affect any benefit entitlement of an employee? In certain cases, participation in the cycle to work scheme may affect some benefit entitlement of an employee. The employer needs to explain any such impact, or potential impact, that the scheme may have on the employees benefit entitlement.
The reduction in cash pay may affect the contributions to certain benefit entitlement. This may include pension scheme, earning-related benefits like Maternity Allowance, contribution-based benefits, like State Pension, and work-related payments, like Statutory Sick Pay. However, this does not have any effect on the holiday pay and bonuses.
What happens if the employee withdraws from the scheme? The agreement, regarding the loan of the cycle and cycling safety gear, between the employer and the employee determines what happens if the employee withdraws from the salary sacrifice arrangement before the completion of the loan period.
The agreement may also make it necessary for the employee to pay compensation if they withdraw from the arrangement before the completion of the loan period. This is why it is necessary to understand every point in the salary sacrifice arrangement before signing it. This ensures proper and effective implementation of the
London cycle scheme.
Consider the details of the salary sacrifice arrangement to understand whether it would be proper and effective for the tax and NICs purposes.
by: Daniel Smith
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