Who can set up a Cycle to Work scheme?
Employers of all sizes can implement a tax exempt loan scheme for their employees. To qualify for the tax exemption, the bicycles and cyclists’ safety equipment loaned by the employer under the scheme must be available to employees generally with no groups of employees excluded.
What are the tax implications of a cycle to work scheme?
Employers can loan out bicycles and cyclists’ safety equipment to employees with tax-free benefits, such as benefits in kind. The cycle to work scheme removes the tax charge that would normally apply. Resulting in lower Class 1 National Insurance Contributions (NIC).
The Employer can claim back the VAT on the bicycle and cyclists’ safety equipment. Unless registered on the flat rate VAT scheme.
Employers who purchase bicycles and cyclists’ safety equipment (up to £1,000 including VAT) for loan to their employees will be able to treat the cost as capital expenditure, and claim the capital allowances in the normal manner. For many businesses bicycles and cyclists’ safety equipment will qualify for Annual Investment Allowance (AIA). AIA allows businesses to write off 100% of qualifying capital expenditure against the businesses’ taxable profits.
For businesses whose employees do not earn above the National Insurance thresholds the saving will just be to the Company in the form of Corporation Tax Relief at 19% for the tax year 2019/20. So, a bike costing £800 will mean a Corporation Tax saving of £152 (£800 x 19%).
Is there a mileage allowance for using a bike?
The employer can pay up to 20 pence per mile tax-free to employees who use their own bicycles for business travel however only journeys to a temporary workplace are allowable.
If the bicycle is under the cycle to work scheme then employees CANNOT claim the 20 pence per mile tax-free mileage allowance for business travel.
What else do I need to watch out for?
To be eligible for the tax exemption for loaned bicycles and cyclists’ safety equipment and to comply with the Consumer Credit Act 1974 (CCA), the agreement must be a hire agreement and NOT a hire purchase agreement.
Examples of cyclists’ safety equipment allowed:
- Bicycle helmets which conform to European standard EN 1078
- Bells and bulb horns
- Lights, including dynamo packs
- Mirrors and mudguards to ensure riders visibility is not impaired
- Bicycle clips and dress guards
- Panniers, luggage carriers and straps to allow luggage to be safely carried
- Child safety seats
- Locks and chains to ensure bicycle can be safely secured
- Pumps, puncture repair kits, bicycle tool kits and tyre sealant to allow for minor repairs
- Reflective clothing along with white front reflectors and spoke reflectors
Examples of cyclists’ safety equipment NOT allowed:
- Bicycle computer
- Waterproof clothing that is not reflective clothing
- Cycling training
The bike must remain the property of the Employer during the loan period however the employer can offer the employee the right to purchase at the end of the loan period (however this must be at fair market value).
The bike must be used mostly for work purposes (i.e. cycling to work or to temporary work places).