Save yourself a minimum of 25% off the cost of buying a new bike with the governments tax-free ‘Cycle To Work‘ scheme.
Many employers have now set up Cycle to Work schemes to encourage their employees to commute by bike. The small investment of time to set up the scheme is worth it for the benefits of fitter, healthier more productive employees who never get stuck in traffic jams.
Cycle to Work is a Government tax exemption scheme designed to promote healthier journeys to work and to reduce pollution, congestion and global warming.
The scheme allows employers to loan cycles and equipment to employees as a tax-free benefit, with the option of buying at the end of the loan period.
Who is eligible?
Employers of all sizes across the public, private and voluntary sectors can implement a tax exempt loan scheme for their employees. The employees wishing to participate should be paid through the PAYE system.
What equipment is included under the tax exemption? Eligible equipment includes cycles and cyclists’ safety equipment. The tax exemption defines ‘a bicycle, a tricycle, or a cycle having four or more wheels, not being in any case a motor vehicle’. An electrically assisted pedal cycle can be included under the scheme.
Cyclists’ safety equipment is not similarly defined in the legislation and a common sense approach should be taken to the equipment provided.
What value of equipment can be supplied?
There is no limit on the total value of the equipment including the cycle. It is possible to loan two cycles to one employee if, for example, that employee needed a cycle at either end of a train journey between their home and place of work. However please note, that the Office of Fair Trading (OFT) has advised that the group consumer credit licence will cover schemes up to a value of £1,000. To extend that, an additional credit licence is required.
How does it work?
The exemption removes the tax charge that would otherwise apply to cycles and cyclists’ safety equipment loaned to employees provided the following conditions are met:
- Ownership of the equipment is not transferred to the employee during the loan period
- Employees use the equipment mainly for qualifying journeys; i.e. for journeys made between the employees home and workplace, or part of those journeys (for example, to the station), or for journeys between one workplace and another
- The Cycle to Work scheme is made available generally to employees of the employer concerned and not confined to directors or offered to them on more favourable terms.
How to set it up?
To take advantage of the tax and Class 1A NICs exemption, an employer can simply buy a cycle and cyclists’ safety equipment, reclaim the VAT (if applicable), make use of the capital allowances and loan it to an employee for qualifying journeys to work. This arrangement means that the employee’s normal salary arrangements are not affected. It may be, however, that the employer wants to recover the cost of providing the cycle and safety equipment loaned to the employee. Usually this would be done through a salary sacrifice arrangement.
There are third party facilitators who assist the employer in setting the scheme up.
The most commonly used are: