Are Cycle-to-Work Schemes Worth it?

Have you ever thought about making a change and shaking up your daily commute? Cycling to work, instead of driving or getting the train, not only has numerous health advantages but can also come with plenty of financial benefits too. 

The Government-backed Cycle-to-Work Scheme, which began in 1999, is designed to help employees save money when buying a brand-new bike (and bike accessories, such as helmets and lights). It allows someone to spread the cost of a bike over monthly tax-free instalments via their employer if their employer is registered with a scheme provider.

According to a paper published by the Department for Transport, the Cycle to Work Scheme “has involved over 40,000 employers across the country and has contributed to helping more than 1.6 million commuters cycle to work”. 

How does a Cycle-to-Work Scheme work?

In the simplest terms, the Cycle-to-Work Scheme allows an employee to buy a new bike. This cost of this is then spread over monthly (tax and interest-free) repayments via their employer until the full cost has been paid off.

There are, however, many different providers of the scheme and each one works in slightly different ways. Cyclescheme and Ride to Work are a few examples of plans that an employer may or may not be signed up for.

Cyclescheme helps employees to save up to 39% on new bikes and accessories, with no upfront cost. Salary sacrifice payments are then spread over a pre-agreed amount of time before the employee decides how they’d like to proceed at the end of the agreement. The bike can either be returned for free, can be bought instantly (the remaining amount of the original market value would need to be paid) or you can ‘Own it Later. By choosing to ‘Own it Later’, an employee would need to pay a small deposit and continue to use the equipment for another three years. At the end of this time, the ownership of the bike would be transferred to them at no extra cost.

Ride to Work, provided by Evans Cycles, operates similarly and has several end-of-hire agreement options to choose from. Transfer4You and Managed by Evans are popular hire choices that come with no further charges or complicated administration processes. After your initial rental period expires, you can continue to keep the bike until its fair market value becomes negligible. Once this happens, Evans Cycles will transfer the ownership to you for free.

Retailers such as Halfords, Wiggle, Cycle Surgery and Tredz provide these schemes and many others.

What are the financial benefits?

As mentioned above, employees that sign up for a Cycle-to-Work scheme will save money. Salary sacrifice payments are tax-exempt and interest-free, meaning the overall cost of the purchase will be considerably less than if you were to buy a brand-new bike outright.

If we look at Cyclescheme as an example, a quick calculation suggests that an employee on a salary of £25,000 per annum (before tax) and who wants to purchase a bike worth £1,000 could save up to 25% throughout a 4-year hire arrangement. 

By selecting the option highlighted above, you’ll have paid the bike off via your salary sacrifice by the end of the first year. You can then put down a small deposit and see out the remaining three years of your agreement without any further monthly payments. At the end of the hire period, ownership of the bike will be transferred to you at no extra cost.

When compared to the one-year equivalent agreement through Cyclescheme, you’ll save up to £180.00! The monthly costs would remain the same, but the payable ownership fee at the end would be considerably higher as the market value will not have depreciated as much.

Ride to Work by Evans Cycles also offers huge savings. As you’ll see in the below example (again, based on a salary of £25,000 per annum before tax), payments are spread evenly over the entire agreement.

 This is an example of a typical Transfer4You agreement over 48 months. After the final payment is made, ownership of the bike will be transferred to the employee at no extra cost once the fair market value becomes negligible. It is with noting that the savings will be the same regardless of how many months you agree to, but a longer hire period will result in smaller monthly payments. 

 The two examples shown above are schemes designed to ease costs over a prolonged period. Of course, there are options to buy your bike outright early, should you wish, but you’ll need to pay the ‘fair market value’ to do this. As a rough example, equipment worth over £500.00 will have a market value of 25% after 12 months, and only 7% after 4 years. 

What happens if I leave my job during a hire agreement?

This is always worth considering, especially if you’re taking out a longer-term contract. If you do leave your job, your employer may ask you to hand the bike back to them (although this is uncommon). They will more than likely just deduct the remaining payment amount from your final pay packet, and you’ll then be advised by your employer how to apply for outright ownership.

You can return the bike to your employer should you no longer wish to keep it, although you will have lost any previous salary sacrifices.

What else do I need to consider?

It’s highly advisable to insure your bike as soon as you get it, as it is your responsibility during the period of the loan. If it gets stolen or damaged, you’ll continue to have to pay for it. For a detailed comparison of bicycle insurance in the UK, you can use price comparison sites like Go.Compare.

Other items such as bike locks, helmets and lights are also worth considering purchasing to ensure you remain as protected as possible whilst out on the roads. All of these accessories can be added to your initial bike order when taking out an agreement if required, allowing extra flexibility when it comes to choosing your ideal hire package. 

So, is a Cycle to Work Scheme worth it?

On the surface, it would certainly appear so - especially if you plan to use your new bike regularly. The financial benefits, as outlined above, do work out in the employee's favour and there are multiple health perks too. In fact. According to Cycling Weekly, cycling regularly not only helps you to lose weight but also improves your mental well-being, your immune system and your lung health!

What’s more, the majority of schemes are easy to register for and don’t require much administration on the employee's part. If you have questions about utilising a Cycle to Work Scheme, it’s always worth chatting with your HR department in the first instance.