Key Highlights
- The Treasury is considering limiting the generosity of the Cycle to Work scheme.
- This move targets high earners who are using the scheme to buy expensive bikes and accessories.
- Average savings for higher-rate taxpayers through this scheme can be as much as 47% off their new bike.
- The government argues that the scheme should help ordinary commuters rather than provide tax breaks for wealthy individuals.
Introduction to the Cycle to Work Scheme
The Cycle to Work scheme, introduced in 1999, allows employees to purchase bikes and accessories through an interest-free loan from their employer. Repayments are then deducted from their salary before income tax and national insurance are applied. This arrangement provides significant savings for higher earners who fall into the top tax brackets.
Government Concerns and Proposed Changes
According to reports, the Treasury is currently evaluating ways to curtail this scheme’s benefits, particularly regarding high-value purchases. The primary concern centers around exploiting the scheme by “high-earners in the Surrey Hills,” as reported by The Times. Rachel Reeves, a government official, is reportedly leading these efforts.
The proposed changes aim to limit the amount employees can claim for bike gear through salary sacrifice schemes.
Currently, there is no strict cap on how much one could spend under this scheme, although employers may set their own limits. The government’s move is part of a broader initiative to scrutinize and potentially restrict salary sacrifice programs that benefit higher-income individuals.
Impact on Participants
A study conducted by HM Revenue & Customs (HMRC) reveals that 32% of users over the past five years were from the top two tax bands. Basic-rate taxpayers spent an average of £650, while those in higher or additional rates paid around £1,000 on their bikes through the scheme. However, a small segment, approximately 6%, spent more than £2,000.
According to Steve Edgell, chairman of the Cycle to Work Alliance, a coalition representing major participants like Halfords and Evans, such changes could “derail one of the government’s biggest success stories” at a time when bike sales are already in decline. The alliance argues that cutting or capping the scheme would have negative repercussions for public health, environmental sustainability, and economic growth.
Broader Context: Salary Sacrifice Programs
The Cycle to Work scheme is part of a wider review of salary sacrifice programs by the Treasury. The government also plans to limit pension contributions through salary sacrifice to £2,000 annually, according to the same source. This move reflects a broader strategy to address perceived inequalities in tax benefits across different income groups.
Despite the scheme’s success in promoting cycling and reducing congestion, some argue that such changes could have adverse effects on its long-term viability.
As bike sales fall, particularly for mechanical bikes (4% decrease) and e-bikes (5%), this scheme serves as a critical support mechanism for both individuals and businesses involved in the cycling industry.
The Treasury has not yet commented on these proposed changes, leaving the future of the Cycle to Work scheme uncertain. As these measures are under consideration ahead of the upcoming budget, they could significantly impact how high earners access tax savings through salary sacrifice schemes in the near future.
