Record the Cycle to Work Scheme in FreeAgent

This article explains how to record Cycle to Work Scheme deductions and purchase of the bike in FreeAgent.

Account for the purchase of the bike

1. Create a new asset category

First, you’ll need to add a custom current asset category and enter a description of the asset, such as 'Cycle to Work Scheme: Employee X'. We recommend you input something here that will make it clear for you to refer back to at a later date.

For instances where the employer owns the bike and leases it to the employee, a capital asset category may be used for the purchase of the bike and a custom income category may be used for the bike lease income.

Input a nominal code between 671 to 720. Then select the relevant Reporting type. If you’re not sure which reporting type to select, please speak to your accountant.

Select ‘Create Category’ if this is the only category you wish to create. If you want to create another category, for instance a loan made to another employee, select ‘Create and Add Another’.

2. Explain the purchase of the bike

Next, you'll need to explain the bike purchase in FreeAgent.

Navigate to the relevant transaction and select ‘Other Money Out’ from the 'Type' drop-down menu and select the new category that you created in the previous step. Write an appropriate description and select any relevant attachments if you need to.

Select ‘Explain transaction’.

Option 1: reduce the employee’s gross pay

1. Reduce the employee’s pay

You'll then need to reduce the employee's pay each month.

Navigate to the relevant employee’s payroll profile and edit their basic pay in the Monthly Pay section. You’ll need to reduce the amount of pay they receive by the amount that’s being used for the Cycle to Work Scheme (i.e. if they get paid £1,230 a month and would like to use £30 towards the scheme, reduce their monthly pay to £1,200).

Select ‘Update Payroll Profile’ at the bottom of the page to complete this process.

You can then run payroll as normal.

2. Create a Journal

Finally, you'll need to add the following journal entries dated the same date as the payroll was run, to record the deduction in your accounts:

• Credit the code of the category you created in the first step of this process for the amount that was reduced from the employee’s salary for the scheme (£30.00 in the example above).
   
• Debit the code ‘401 - Salaries’ for the same amount if the employee is not a director. If the employee is a director, debit the code ‘407 - Directors’ Salaries’.

Select 'Create New Journal' to complete the process.

Please note that you'll need to enter these journals every month that the employee’s pay is reduced for the Cycle to Work Scheme.

Option 2: enter the deductions as a salary sacrifice

1. Enter the amount as a salary sacrifice deduction

First, navigate to the relevant employee’s payroll profile and enter the amount used towards the scheme in the ‘Salary Sacrifice Deductions’ box.

Select ‘Update Payroll Profile’ at the bottom of the page and the next payslip will reflect this amount, and will also allocate this amount automatically to the '815 - Other Payroll Deductions' liability category.

You can then run payroll as normal, paying the employee the reduced net figure amount.

2. Create journal entries

Finally, you'll need to add the following journal entries dated the same date as the payroll was run, to record the deduction in your accounts:

• Credit the code of the category you created in the first step of this process for the amount that was reduced from the employee’s salary for the scheme (£30.00 in the example above).
   
• Debit the code ‘815 - Other Payroll Deductions' for the same amount.

Select 'Create New Journal' to complete the process.

Please note that you'll need to enter these journals every month that the employee’s pay is reduced for the Cycle to Work Scheme.