What is salary sacrifice and how are savings made?
With a salary sacrifice you pay back the loan on your bike, accessories and safety equipment from gross rather than net pay for the hire period (usually 12 months), allowing you to benefit from income tax and NI relief. See www.hmrc.gov.uk/specialist/salary_sacrifice.pdf for a more detailed explanation.
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 some kind of non-cash benefit, such as the loan of a bicycle 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. Employers that can reclaim VAT usually pass this saving on to their employees, which increases savings further. Employers also save on Secondary Class NICs (usually around 12.8%) as the amount they’re paying in wages is also lower. See www.hmrc.gov.uk/specialist/salary_sacrifice.pdf for a more detailed explanation.
