The Cycle to Work scheme continues to attract interest from employees and employers alike looking to optimise their salary package and perhaps gain a tax break.
Below is an overview for businesses considering running a scheme or reviewing their existing arrangements.
The Basic Structure
The scheme allows an employer to provide a bike and eligible safety equipment tax free to their employees.
This is often done in conjunction with a salary sacrifice agreement where the employee’s gross pay is reduced for a set period to cover the costs. The salary sacrifice means the employee pays less income tax and national insurance, and the employer pays less employer national insurance.
Bikes can be provided in different ways.
- The bike and equipment can be loaned to the employee.
- A voucher can be provided so that the employee can hire the bike and equipment.
- Pool cycles can be made available for the general use of employees.
At the end of the hire period, employees can either continue hiring, return the bike, or buy it at a fair-market-value payment based on HMRC guidance.
Conditions That Must Be Met
To be compliant with the rules:
- The employee must not own the bike during the hire period.
- The bike must be used mainly (>50%) for commuting or work-related travel.
- The scheme must be available to the whole workforce.
Practical Considerations for Employers
Most employers work with a third-party provider to manage the administration work, although there is no reason it cannot be run in-house.
HMRC does not expect employers to monitor the non-work use employees make of the bike, nor are employees expected to keep detailed records of their bike use to justify how it is being used.
If salary sacrifice is being used along with the Cycle to Work scheme, there is a need to be careful that the scheme still meets the requirement to be available to all employees.
Subject to partial exemption rules, VAT can be reclaimed on any bikes and equipment purchased by the employer.
In Conclusion
Cycle to Work remains a straightforward way for employers to provide tax efficient support to their employees. If you would like personalised advice on whether or how a scheme could work in your workplace, please get in touch. We would be happy to help you!