Cycle scheme tax breaks for your business
What tax breaks are available to you if you provide your workforce with an eco travel/cycle scheme?
There are different ways of providing cycles and safety equipment to your team:
- The loan of cycling equipment to employees.
- Providing pool cycles for general use by employees.
- Providing employee loans so an employee can purchase their own equipment.
The loan of cycles etc is covered by the government’s ’Cycle to Work’ scheme. This scheme enables an employer to provide cycles and/or associated safety equipment to employees tax free.
Equipment must be offered to all employees, so no section of the workforce is excluded.
Ownership must not transfer to the employee during the loan period. The equipment must be used mainly (>50%) for qualifying journeys (all or part of journeys between home and workplace or between workplace and workplace).
- A “cycle” must have at least two wheels and not be a motor vehicle, although an electrically assisted pedal cycle is allowable.
- The legislation does not define “cyclists’ safety equipment” so it takes its ordinary meaning.
- Tax relief for the employer.
- VAT can be reclaimed on items bought for provision to employees.
Cycle scheme finance options
Capital allowances in the form of the Annual Investment Allowance or Writing Down Allowance (if the AIA is not fully claimed) can be claimed on capital purchases incurred by an employer or by an employee.
Ongoing costs of repair and maintenance are tax deductible for income tax or corporation tax.
A salary sacrifice scheme can be operated in conjunction with the cycle to work scheme. The benefit remains non-taxable, even after the 6 April 2017 changes to salary sacrifice schemes.
Once the loan period has ended the cycle can be transferred to the employee. This follows the normal rules for transferring an asset to an employee, except that HMRC offer a simplified valuation method for cycles previously under the scheme.
Loan to an employee to purchase their own equipment
An employer may make a tax-free loan to an employee for a sum of up to £10,000 per year.
There are special rules for director and company participators which need to also be considered.
Transfer to an employee
A benefit can arise where title to the asset transfers to the employee.
HMRC provide a simplified valuation method for an employer to use when it transfers the ownership of a bicycle to an employee.
Providing an employee pays his employer the market value of the cycle at the date of the transfer no taxable benefit arises (there is no NICs charge either). If the employee is given a cycle or pays less than market value, the difference between market value and the price (if any paid) is taxable as employment income.
To assist employers in the task of valuing cycles HMRC provide a valuation table:
|Age of cycle||Acceptable disposal value percentage|
|Original price of the cycle less than £500||Original price £500+|
|6 years & over||Negligible||Negligible|
How to use the valuation table
The original price of the cycle is the price for which it was on sale as new at the time when it was first provided to the employee. In salary sacrifice arrangements, this price may be clearly referred to in the documentation. Cycles are normally acquired by employers at arm’s length from unconnected persons and where this is the case, either of the following can be accepted as the original price of the cycle:
- the amount that the employer paid or was invoiced for the cycle or
- the retail price of the cycle that was considered in working out any hire payments.
It is acceptable to use the VAT exclusive amount in calculating the original price of the cycle. However, where the valuation percentage is applied to a VAT exclusive amount, VAT will need to be added to the result to arrive at the acceptable market value. This must be done regardless of whether the employer is VAT-registered.
Note: In calculating the original price of the cycle, include safety equipment fitted to the cycle (such as lights and bells) but not safety equipment which would be worn by the cyclist (such as helmets or reflective clothing).
Where used regularly for commuting and/or travel between workplaces, safety equipment is worn by the cyclist is likely to have a market value that is lower than the table percentages for a cycle and cycle-based safety equipment.
VAT: Employers will need to consider how to account for VAT on sales of used cycles.
Cycle scheme small print
A “cycle” means a bicycle, a tricycle, or a cycle having four or more wheels, not a motor vehicle. HMRC updated its guidance on the Cycle to Work scheme in June 2019.
More detail on simplified valuation is available in HMRC’s Employment Income Manual para EMI21667a
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