Through the UK Government's 'Green Transport Plan', staff can take advantage of a tax free bicycle loaned to them by employers as part of their employment package.

Employers provide a bicycle to staff and in return the employee agrees to monthly deductions in their gross salary (Salary Sacrifice) for the use of the bicycle during the loan period. Loan periods are typically 1 to 3 years and at the end of the stipulated period, the bike can be offered to the employee in return for a nominal payment.

The HMRC has recently tightened up the rules on 'residual values' for selling on bikes at the end of the lease period. The HMRC have provided a document Salary Sacrifice arrangements involving cycles and bus passes which gives more information on the revised rules relating to the sale of bikes after the end of the loan period.

The most authoritative source of information is the Department for Transport's Cycle to Work Scheme Implementation Guidance.

The HMRC provide details of Salary Sacrifice Schemes generally (ie. not just the Cycle to Work Scheme). More specifically, there is the HMRC's manual on bikes and salary sacrifice.

Salary Sacrifice Schemes require a working knowledge of employment law and the intricacies of the tax system. The paperwork is tricky to complete and there are pitfalls for the unwary such as falling foul of minimum wage requirements, credit licences and the redrafting of employee contracts. It is not surprising then that many organisations employ a third party expert to administer their scheme. Examples include cyclescheme.co.uk and Cycle Solutions though many others are available.

Find out how salary sacrifice arrangements work and how they might affect an employee's current and future income.  Visit HMRC for guidance on Salary Sacrifice schemes.