This government scheme enables employers to loan cycles and associated safety equipment to employees as a tax-free benefit with the option to buy at a discounted price at the end of the loan period.
Employees can save between 25% and 42% off the cost of a new bike, depending on the cycle package and their tax bracket.
About the scheme
It’s a win-win proposition:
- Employers benefit from fitter, healthier and more productive employees, and demonstrate real commitment to their workforce and the environment
- Employees are enabled to commute to work by bike, saving money and time (no more traffic excuses for being late!), plus they can buy the bike at a discounted price
- The government achieves its aim of promoting healthier journeys to work and reducing pollution, congestion and global warming
Who is eligible?
Any employer can implement the tax-exempt loan scheme for their employees; it’s administered through the PAYE system
What is included under the tax exemption?
Eligible equipment includes:
- All types of bicycles, including ‘electrically-assisted pedal cycles’
- Types of cyclists’ safety equipment are not defined, so a common sense approach needs to be taken
What value of equipment can be supplied?
There is no limit on the total value. It’s even 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: the Office of Fair Trading (OFT) has advised that the group consumer credit licence will cover schemes up to a value of £3,000. To extend that, an additional credit licence is required.
How does the scheme 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.