In order to promote a healthier lifestyle and help reduce environmental pollution, the Cycle to Work scheme was introduced. An employer can benefit from annual tax exemption, in accordance with the Finance Act (1999), as they can loan bikes and safety equipment to employees as a tax-free benefit.
Any company, big or small, in public, private or voluntary sectors, are eligible for the scheme. The broader the participation throughout the company, the more a company can benefit. To qualify for tax exemption, bikes and safety equipment must be available to employees generally and not be limited to directors or those working in certain departments for example.
The tax exemption defines a bike as: a bicycle, a tricycle, or a cycle having four or more wheels, not being in any case a motor vehicle (192 of Road Traffic Act 1988 [c.52])
The safety equipment includes:
• Helmets (under the European Standard EN 1078)
• Bells and bulb horns
• Lights, including dynamo packs
• Mirrors & mudguards
• Cycle clips & dress guards
• Panniers, luggage carriers & straps
• Locks & chains
• Pumps, puncture repair kits, cycle tool kits & tyre sealant
• Reflective clothing, white front reflectors & spoke reflectors
It is an employers choice as to what safety equipment is included, but it is best to confirm with the tax inspector. There is no limit on the total value of safety equipment, including the bike.
It is possible to loan two bikes per employee e.g. if the employee requires a bike for either end of their train journey. In order to encourage participation in the scheme, consider providing facilities at work such as cycle racks, lockers and showers.
To qualify for tax exemption, the scheme must meet certain conditions:
• The ownership of the bike cannot be transferred to the employee during the loan period.
• The bike has to be used mainly for qualifying journeys i.e. to get to and from work, as part of a work-related journey or between workplaces. (Mainly = more than 50% of the bikes usage is for work-related journeys.)
• If the bikes usage is below the 50% mentioned above, the company can lose the benefit of tax exemption. In this case, the employer will need to report it as a benefit in kind on a P11D and account for Class A NIC. The employee is then liable for the tax on benefit in kind.
To take advantage of tax exemption and Class A NIC exemption, an employer can buy a bike and relevant safety equipment, reclaim VAT, use capital allowances and loan the bike and its equipment to an employee for qualifying journeys to work. This way, the employees salary arrangements are unaffected.
However, if an employer wants to recover the costs of the bike etc, this can be done through salary sacrifice.
Can an employee keep the bike at the end of the loan period?
An employee has no automatic right to keep the bike, unless it is otherwise stated in the original agreement between the employer and the employee.
However, an employer can give the option for the employee to purchase the bike and equipment. Typically, the price is lower than the original value, but to prevent taxable benefit in kind because of the change in ownership, the price must be the fair market value.
Alternatively, an employer can let the employee use the equipment and bike after the loan period ends, as long as the conditions continue to be met. In this case, the ownership of the bike and equipment is not transferred.
An employee who is considering joining the Cycle To Work scheme, but wants to use their own bike, can claim 20p per mile, tax free, for business miles, as opposed to having a bike loaned to them.
An employee who has had a bike loaned to them CANNOT claim mileage allowances.