Cycle to work schemes – watch out for potholes!

Cycle to work schemes – watch out for potholes!

Cycle to work schemes are important and valued employee benefits, but employers should be aware of the regulatory aspects.

Caroline Laffey

Partner, Employer Reward Services

KPMG in the UK


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Cycle to work schemes are a popular part of many companies’ total reward packages. We have seen an increased number of queries from employers who are considering offering, or reviewing, cycle to work schemes in response to employees’ increased interest in using bicycles to commute. This is particularly the case as employers consider their COVID-19 return to work planning. Provided certain conditions are met, the provision of bikes and safety equipment will be income tax free and, if offered through salary sacrifice, generate national insurance savings for the employee and employer. However, in certain circumstances, cycle to work schemes can require Financial Conduct Authority (FCA) authorisation for the employer. This article summarises the position.

How do schemes operate?

Salary sacrifice cycle to work schemes often involve the employer entering into a consumer hire agreement with the employee for the use of cycling equipment.

In principle, the employer must be authorised by the FCA to offer consumer hire agreements. However, there is an exemption from authorisation for qualifying cycle to work schemes where the value of the cycling equipment provided to each employee does not exceed £1,000. Therefore, many employers limit the value of cycling equipment to £1,000 to benefit from this exemption.

For employers who want to offer higher value cycling equipment, the Department for Transport (DfT) revised its cycle to work scheme guidance last year to explain how this can be done. The DfT guidance explains that FCA authorised third party providers can enter into agreements directly with employees and run cycle to work schemes on behalf of the employer. If this is done, the employer no longer needs to observe the £1,000 limit, but it is important to consider other FCA requirements.

What are the regulatory issues?

In particular given the changes to commuting patterns as a result of the COVID-19 outbreak, many employers will be looking to amend their cycle to work scheme arrangements to increase the value of equipment provided to employees. In order to remove the need to limit the value of equipment provided to £1,000, the scheme provider will need to be an FCA authorised third party.

However, one point that could potentially be overlooked is that the employer will also need to consider whether it may still be carrying out ‘credit brokering’. If this is the case based on the specific set up of its scheme, the employer will still be required to:

  • Seek FCA authorisation to act as a credit broker; or
  • Act as an ‘appointed representative’ of the scheme provider (which would involve the scheme provider supervising the employer’s activities as its representative).

Deciding whether to increase the value of equipment provided will require employers to carefully consider their scheme rules, particularly in relation to National Minimum Wage compliance and practical issues in retrieving cycling equipment from leavers.

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