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Cycle To Work – Employee Benefits & Tax Savings

12 February 2021
Jan Friend
Reducing Tax, Payroll, People

Cycling to Work – Encouraging Employees to Live More Healthily

Being able to cycle to work has many more advantages than you may first realise.  First of all, there is the obvious fact that it is an excellent form of exercise. You save money, burn calories, increase cardiovascular fitness and therefore enjoy the office treats that little bit more!  There is also, of course, the benefits exercise has on your mental health.  Studies show exercise increases endorphin levels, lifts your mood and increases productivity.  Being proactive before work will set the tone for the day ahead.

Employers are becoming increasingly aware of the advantages of giving employees benefits and ‘perks’ to boost morale and ensure that their workplace is a place that they want to be, not just a place they have to be.

For the reasons listed above, more and more employers are encouraging their employees to get a bike and cycle to work rather than drive or use public transport. Luckily the government provide tax incentives, which makes this arrangement attractive to employer and employee, particularly for owner-managed businesses where they are often the same!

Cycle to Work Scheme

Larger employers tend to hire cycling equipment using the Cycle to Work Scheme, often through external companies such as Cyclescheme. They then use salary sacrifice schemes, which effectively use some of the employee’s salary to pay the hire-costs of the equipment, and save tax and National Insurance for the employee and employer’s national insurance by doing so.

A salary sacrifice works in both the employer and employee’s interests by reducing the amount of income that can be taxed, therefore generating a significant saving.

If a smaller company wanted to hire equipment under the Cycle to Work scheme or salary sacrifice for their employees they could do so. However, using this arrangement may mean the risk that the employer is deemed to be acting as a credit broker and as such would need FCA authorisation for credit broking. If you act as a credit broker without being authorised, this is likely to be a criminal offence. For that reason, we would not recommend a client of ours to start a Cycle To Work scheme without first taking legal advice.

Our client bank is made up largely of small and medium companies, usually family-run, so how can they profit from helping employees cycle to work?

Employer Tax Relief on Hiring or Lending Cycles

From the employer’s point of view, the purchase of the cycling equipment and cycling safety accessories qualifies for full tax relief in the year of purchase, assuming they have available annual investment allowance. The company can also reclaim VAT on the purchase. For the employee, there is no benefit in kind tax to pay if the equipment is provided to them free to use, provided the ownership of the equipment stays with the employer.

Firstly, let’s look at what equipment is included in the tax exemption:

  • Bicycles
  • Tricycles
  • Cycles with four or more wheels, not being in any case a motor vehicle
  • Electrically Assisted Pedal Cycle — e-bikes are becoming more and more popular!
  • Cyclist’s safety equipment

What are the tax implications of loans to employees?

Some conditions need to be satisfied for the tax exemption to apply. Firstly, the scheme must be open to all employees, so if a company director wants to pay for his bicycle through his company, he would need to provide the same offer to his employees.

Secondly, the employee must use the bike mainly for qualifying journeys, i.e. journeys from home to work, between one workplace and another or on business trips. Although the employer is supposed to check that the qualifying use has exceeded the non-qualifying use when preparing the annual return of company benefits form (P11D), the government has indicated that by concession no action will be taken to withdraw the relief if the bike is also used for private or leisure purposes.

In addition to the tax exemption, there is no benefit in kind for the provision by the employer of cycle parking facilities, provided they are near the place of work. The employer can also pay their employee 20p per mile tax-free for any business journeys travelled on their bike.

The really good news is that there is no upper limit on the amount the employer pays for the equipment — it is all tax-free for the employee provided it satisfies the conditions mentioned above!

If you have any questions about company cycles or other employment-related queries contact us today.

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