Focus on facts
What are bikes-for-work schemes?
These are tax-free loans to employees that can be operated through salary sacrifice arrangements. Employers buy a bike and safety equipment for the employee and deduct the cost from their gross pay in equal instalments. This arrangement results in tax savings for the employee and national insurance savings for both employer and employee.
Who are the main providers?
Some of the main providers of bikes-for-work schemes include: Bike 2 Work Scheme, Cyclescheme, Cycle Solutions, CycleSurgery, Evans Cycles, Halfords, Hargroves Cycles, P&MM and Transport for London.
The 2012 London Olympics and Paralympics have given a boost to bikes-for-work schemes, which still offer worthwhile tax savings despite recent rule changes, says Viola Caon
The bikes-for-work scheme was launched in the Finance Act 1999 under the Labour government’s Green transport plan, which aimed to promote healthier journeys to work for commuters and reduce environmental pollution on the roads.
Under the scheme, employers fund bikes and cycle equipment on behalf of their employees, who then lease these back over a period of 12 to 18 months, usually through a salary sacrifice arrangement.
Employees are responsible for sourcing the bike and equipment they require for their commute. Under the rules, more than 50% of the bicycle’s usage time must be for commuting to and from work.
One of the main attractions of the scheme is the available tax breaks. Employees are able to save on income tax and national insurance (NI) because their repayments are deducted from gross pay, while employers can save on NI and also reclaim the VAT they paid on the bike and equipment.
But a new tax ruling that came into effect on 1 January 2012 threatened to reduce the attractiveness of the bikes-for-work scheme by introducing a VAT charge for the salary sacrifice payments employees make for their bike and equipment.
It was a change that many feared would threaten the scheme’s popularity, particularly as employees already pay VAT on the purchase price if they decide to buy the bike at the end of the leasing period. Previously, this cost them a minimal amount of about 5% of the purchase price, but HM Revenue and Customs (HMRC) regulations, published in 2009 and implemented in 2010, introduced a fair value rule that requires employees to pay a price more reflective of the bike’s initial value.
James Malia, head of employee benefits at P&MM Employee Benefits, says: “When employers initially heard of the tax change, they thought it was a big deal. But we managed to show them they still have a good chance to make significant [tax] savings. Employers are now more confident in taking up the scheme.”
Charles Ashwell, corporate sales manager at Halfords, adds: “In our conversations with existing and prospective clients, it is clear the uncertainties sparked by HMRC guidance and VAT changes are now behind us.”
More positively, the 2012 London Olympic and Paralympic Games have helped boost interest in bikes-for-work schemes, with employers keen to ensure their staff can get to work during the games while employees want to avoid traffic and public transport problems.
Ashwell says: “The Olympics are raising interest in cycling. Halfords has set a new record of 23% employee take-up with a leading public sector organisation, and achieved similar success in a private sector partnership with a premium automotive manufacturer.”
But Malia says the Olympics are not the only reason for bike schemes’ current popularity. “The games are having an impact now, but I think the success of the scheme is due more to the increasing attention employers pay to the health and wellbeing of their staff and on the tax savings they can make.”
Mark Brown of the Cycle to Work Alliance will speak on the latest market trends at Employee Benefits Live on 25 September
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