Apart from being eco-friendly and a healthy source of cardiovascular activity, cycle-to-work schemes also bring tax benefits, says Debbie Lovewell
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Bicycle loans, or bikes-for-work schemes, are a government-supported initiative designed to promote greener transport options.
They are mostly operated through a salary sacrifice arrangement, whereby employees agree to give up a portion of their gross salary in return for their employer’s agreement to supply them with a bicycle and related safety equipment on loan for a set hire period.
Schemes typically run for 12 months, although the length is fixed at the employer’s discretion. If employers use external financing to purchase the equipment, the typical repayment period may increase to 18 months in order to minimise charges.
As payments are made from employees’ gross salary, they are made free from income tax and national insurance (NI), while employers also save the NI contribution of 12.8% on the value of salary sacrificed. If employers purchase the bikes outright, they can also reclaim the VAT on them. Some may pass this saving onto staff.
In order to qualify for the tax exemption, staff must use their bike for at least part of the journey between home and work, or between workplaces.
Depending on the provider, employees can either choose a bicycle and equipment directly from the retailer used, or they will be given a voucher which they can redeem against goods.
The bicycle and any associated safety equipment remains the property of employers until the end of the loan period, when employees are usually offered the chance to purchase them at a fair market rate from their net salary. If they choose not to do so, staff may be charged the equivalent value to dispose of the equipment.
All employers offering a cycle-to-work scheme should make sure they are covered by a group consumer credit licence issued by the Office of Fair Trading for all equipment up to the value of £1,000 (including VAT) and before any income tax is deducted. Employers that wish to offer staff equipment above this limit must apply for a standard consumer credit licence. As bikes-for-work is a government-sponsored initiative, employers do not need to inform HM Revenue & Customs of their schemes.
When communicating a scheme to staff, employers must ensure that all marketing materials around bikes-for-work schemes accurately reflect the available tax break. In February, the Department for Transport re-iterated that tax savings can only be made on employer-loaned cycles, so these schemes should not be marketed to staff as an opportunity to purchase discounted bikes. It also warned that employees should not be told that they can buy a bike priced above the £1,000 consumer credit limit by topping up their salary sacrifice arrangement because this would void the tax break.
Bikes-for-work schemes are not suitable for all organisations, however. Those that employ staff on, or close to, the minimum wage may not be able to offer a scheme if it would reduce employees’ salary below this level. Employers should also educate staff about the potential impact of a reduction in salary on state benefits.
What are bicycle loans?
A bicycle loan is a tax-free scheme typically operated through a salary sacrifice arrangement, whereby staff agree to give up a portion of their gross salary in return for their employer’s agreement to provide a bicycle and related equipment on loan, usually for a period of either 12 or 18 months.
Where can employers get more information?
More information around salary sacrifice arrangements, including bicycle loans is available at www.hrmc.gov.uk/ specialist/salary_sacrifice.pdf
Group consumer credit licences can be downloaded from www.oft.gov.uk/ business/licence/group.htm
Main providers (which supply other providers with products)
• Cycle Scheme
• Cycle Solutions
• Evans Cycles