Cycle to Work scheme

Cycle to Work scheme is a UK Government annual tax exemption initiative introduced in the 1999 Finance Act to promote healthier journeys to work and to reduce environmental pollution. It allows employers to loan cycles and cyclists' safety equipment to employees as a tax-free benefit. The exemption was one of a series of measures introduced under the Government's Green Transport Plan. A Cycle to Work scheme does not require the prior approval of HMRC.

On 6th August 2010 HMRC issued a statement to clarify the fair market value, which should be charged if the employees want to take ownership of the bike at the end of the repayment. The full statement including the matrix is available here: http://www.hmrc.gov.uk/manuals/eimanual/eim21667a.htm Some of the providers have always recommended continued use at no further charge as the best option to avoid any additional cost and remain within the scheme guidelines.

Recently some concerns have developed with regards to the employer reclaiming VAT on the salary sacrifice vouchers, however, its impact on the Cycle to Work scheme is yet unclear. An update from HMRC is expected shortly. Please click here for more details

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. The scheme is not available to the self-employed or employees on the National Minimum Wage.

What equipment is included under the tax exemption

Eligible equipment includes cycles and cyclists' safety equipment. The tax exemption defines a "cycle" as '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.

Cycle to Work Alliance

Some of the biggest scheme providers have recently started Cycle to Work Alliance, a legal group to represent the interests of the scheme providers and users in negotiations with HMRC.

References

- Scheme Guidelines
- Department for Transport
- HMRC - Salary Sacrifice - [1]