We recently blogged about claiming the use of a bicycle as a mode of business transport in a self-employed business, however in this blog post we wanted to focus on the Cycle to Work Scheme.
Introduced in the 1999 Finance Act to encourage healthier work journeys and a reduction in pollution levels, the Cycle to Work Scheme was set up and introduced an annual tax exemption, allowing employers to loan cycles and associated safety equipment to employees as a tax free benefit.
So why operate the scheme? There are numerous advantages, namely the health benefits, a reduction in CO2 emissions, as well as tax savings.
Employers of all sizes can operate the scheme for employees, on the proviso that cycles and equipment loaned by the employer are available to all (with no employee groups excluded). In the case of one-man limited companies, this obviously poses no issues.
A cycle in the Road Traffic Act 1988 is defined as ‘a bicycle, a tricycle, or a cycle having four or more wheels, not being in any case a motor vehicle’, and includes electric bikes.
Although there is no maximum value, the Office of Fair Trading advises that group consumer credit licence covers schemes up to £1,000.
The tax exemption applies where:
• Employees use the equipment mainly (i.e. more than 50%) for qualifying journeys (being journeys between home and work, part of these journeys (e.g. to the station), and journeys between work places)
• Ownership of the equipment is not transferred during the loan period
• The scheme is available to all employees
There is no requirement for employees to maintain a mileage log, although to do so is good practice, for example if there was ever the need to prove that there was no taxable benefit in kind.
The scheme is operated via salary sacrifice, whereby an employee gives up their right to receive part of their salary and accept a lower wage.
This is beneficial to the employee as they save income tax and NI as the loan amount comes out of gross salary, and the employer saves on NI costs.
Employers also benefit by being able to claim capital allowances on the equipment, as well as being to claim back VAT suffered (depending on the VAT scheme being operated by the employer). Where equipment is leased, leasing costs will usually be a tax deductible expense for the company.
There are some important factors to consider, however. For example, salary sacrifice arrangements cannot push an employee’s gross pay below the minimum wage.
It may also impact on entitlement to important benefits, such as State Pension, Maternity Pay and Statutory Sick Pay.
As an alternative to the Cycle to Work Scheme, employees may opt to use their own cycles for business travel (this does not include commuting). Where this is the case, mileage can be claimed at a rate of 20p per mile. A claim cannot be made where cycles are provided by the employer.
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