Salary sacrifice is a voluntary agreement whereby an employee agrees to give up a portion of their pre-tax cash salary (for an agreed period) in exchange for a non-cash benefit provided by their employer. Salary sacrifice is usually used in conjunction with employee benefits such as pensions and the Cycle to Work Scheme.
Recently, salary sacrifice has been in the news. You may have heard that a cap on salary sacrifice payments is being introduced by the government. This may have caused some concern about how this will impact the Cycle to Work Scheme.
What is going on, then? The annual amount exempt from National Insurance contributions (NICs) for employees who make salary sacrifices into their pension plans will be limited to £2,000 as of April 202 (however, contributions will still be exempt from Income Tax). This means employees, as well as employers, will pay NICs on the amount above £2,000 for employee contributions through salary sacrifice into a pension scheme.
You may have spotted that there is no mention of the Cycle to Work Scheme, and for good reason. Only pension contributions are impacted by the changes to the salary sacrifice mechanism; the Cycle to Work Scheme is unaffected. The tax benefits of using the Cycle to Work Scheme remain unchanged.
This means, subject to employer limits, there is no cap on how much you can spend on a bike through the Cycle to Work scheme. Scheme savings start from 28% rising to 47% for additional rate tax payers. Apart from the significant savings, the other massive benefit of the scheme is that cost of the bike can be spread over a long period of time resulting in manageable monthly salary sacrifice payments.
So, there’s no need to panic over this latest government policy update. Supporting active travel remains on the political agenda and ditching the car for a ride to work instead should be on yours.
