These days Britain is a nation of cyclists, perhaps not yet to rival the Dutch but we’re pedalling fast to catch up. And with summeron the way many of us fair–weather riders are looking forward to getting back in the saddle. But if your bike is looking a bit tired and needs replacing the cycle to work scheme is worth considering. It’s a little more flexible than its name suggests.
Cycle to work (and elsewhere)
Broadly, the cycle to work scheme means businesses can offer their employees, including directors, use of a bike that it owns or rents as a tax and NI–free perk. Naturally there’s a little more to it than that, but the basic conditions of the scheme are fairly simple:
- use of bikes must be offered to all employees, although to obtain the tax break it’s not necessary for all employees to take up the offer
- employees must not own the bikes. But they can be given to the employees or directors after a period of time. Alternatively the bike can be sold to them at a price that results in no taxable benefit in kind (BiK)
- the bike must be used mainly for work–related journeys, e.g. to or from a workplace, to or from the station as part of a commute or even between branches, depots, etc.
Tip. The tax and NI exemption extends to cycle safety and protective wear provided by employers, e.g. helmets, gloves, etc.
HMRC’s guidance says employees aren’t required to keep detailed records and that taxinspectors should accept that the business use test is met unless there is clear evidence to the contrary.
End of the cycle
After a while you can sell or give the bike to the employee. There’s no set period forwhich the business must own it, but at least a year seems sensible. While the gift of abike is a BiK the tax bill is typically quite small. You can avoid it entirely if you sell thebike for no less than HMRC’s guide price (see The next step ).
Example. Using HMRC’s guide price, a bike which cost less than £500 (including VAT) when new can be given to an employee after one year and the taxable BiK is 18% of its original price, i.e. £90. For a 20% taxpayer that means a tax bill of just £18. Theemployer will have to pay £12 in Class 1A NI. If the bike is sold to the employee for at least £90 there’s no taxable BiK.
Money no object
Bikes used in the scheme don’t have to be of equal value. You can offer cheaper ones to most employees say, costing up to £275 and pricier ones to senior employees and directors. As you’ll know if you’re a keen cyclist a good road bike can cost thousands. Even so HMRC’s guide price is still pretty generous. For example, the guide value fora bike costing £1,800 new will be just 25% of that (£450) after a year. So if your company were to give you the bike and you’re a 40% taxpayer your tax bill would be just £180.
Reproduced with the permission of Indicator – FL Memo Limited. For subscription information call 01233 653500