Salary sacrifice occurs when an employee agrees to give up part of their salary for an agreed period (in the case of the Cycle to Work scheme this is usually 12 months) in exchange for a non-cash benefit, such as the loan of a cycle and safety equipment.
As salary sacrifice is taken from the gross salary (before tax) rather than net pay it means the employee pays less income tax and National Insurance.
It is the employee’s responsibility to maintain the bike.
The bike manufacturers will be able to advise about maintenance and servicing depending on how the bike is. If the bike is stolen, as long as the employee replaces the bike and continues to use it mainly for commuting purposes, the employer can continue to take the salary sacrifice reductions from gross salary.
This means the participant can still take advantage of the income tax and National Insurance Contribution (NIC) savings.
Once signed, the Hire Agreement is non-cancellable following a cooling-off period of 7 working days following collection of the goods.
This means that if an employee leaves or is made redundant from their employment during the hire period they are obliged to pay the remaining salary sacrifice amount in full from net pay i.e. without any tax exemptions.
If applicable, the employee may then be offered ownership of the equipment in the normal way.
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