Tag Archives: salary sacrifice scheme

Cycle to Work Scheme – are you eligible?

The Cycle to Work Scheme allows an employee to get a bike tax free. The scheme is open to any size employer and is operated via a salary sacrifice scheme.

To be eligible the bike must be used at least 50% for business purposes but can be used for non-business purposes too.

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 £1,666.67 (£20,000 per annum).
Salary before
scheme participation
Salary during
scheme participation
Monthly Gross Salary £1,666.67 £1,666.67
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
£1,666.67
£120.48
£189.00
£1,357.19
£1,625.01
£115.68
£180.60
£1,328.73
MONTHLY NET SALARY REDUCTION £1,357.19 minus £1,328.73 = £28.46
MONTHLY SAVING £41.66 minus £28.46 = £13.20

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 £28.46, resulting in a saving of £13.20 per month.

  • Typical savings for employees are between 32% for basic rate taxpayers and 42% for high rate taxpayers.
  • Employers can typically save 13.8% of the total value of salary sacrifice, due to reductions in Employers’ National Insurance Contributions (NICs) due.
  • The Office of Fair Trading (OFT) has issued a group consumer credit licence to cover Employers implementing Cycle to Work Schemes that are limited at £1,000 inc. VAT per Certificate.
  • During the hire period the bike is the property of the Employer.
  • In order to preserve the tax benefits of the scheme, there can be no guarantee or obligation to transfer ownership to the employee immediately after the hire period has ended.  However, employers generally choose to offer this option in addition to others, either directly or via the Cycle Scheme provider.

If you want advice on the Cycle to Work Scheme, please get in touch.

Childcare Vouchers – can you claim them?

The process of receiving and paying with childcare vouchers is designed to be simple and straightforward for both employers and employees.

Most employers who provide childcare vouchers do so through a salary sacrifice scheme.  This means you agree to reduce your salary by a certain value, and receive childcare vouchers to the same value but pay no tax or National Insurance on these vouchers.

To join your employer’s childcare vouchers scheme you first of all need to complete a salary sacrifice agreement. Your employer will give you directions on how to do this.

After your agreement has been submitted to your employer, they will reduce your salary by the requested amount and arrange for vouchers to be provided to you.

 Status  Annual Tax exempt amount*  Savings*
Basic rate (contracted out) 20% tax 10.6% NI  £2,916  £892
Basic rate (contracted in) 20% tax 12% NI  £2,916  £933
Higher rate category 40% tax 2% NI  £1,484  £623
Additional rate category 45% tax 2% NI  £1,325  £623

If you are found to fall into the higher rate category (as a rough guide this is likely to be those earning between £44,781 and £151,484) you will be able to get £124 a month tax and NI exempt (£28 a week).

An example for someone earning £20,000 per annum, £1,666.67 per month.

Salary before
scheme participation
Salary during
scheme participation
Monthly Gross Salary £1,666.67 £1,666.67
Childcare vouchers per monthGross salary sacrifice total £243.00
£243.00
MONTHLY GROSS SALARY SACRIFICE £243
Monthly Gross Salary after salary sacrifice
Monthly NIC contribution (12%)
Monthly income tax contribution (20%)
Net Salary
£1,666.67
£120.48
£189.00
£1,357.19
£1,423.67
£91.20
£140.40
£1,192.07
MONTHLY NET SALARY REDUCTION £1,357.19 minus £1,192.07 = £165.12
MONTHLY SAVING £243.00 minus £165.12 = £77.88
ANNUAL SAVING £77.88 x 12 = £934.56

If you want advice on claiming childcare vouchers and what may be best for you, please get in touch.