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23 October 2019

How to get a tax free bike!

Tax Tips – Business Question:

I run a small business with the premises the city centre. Some of my staff have recently started to cycle to work due to road congestion and parking. They have enquired about the government’s Cycle to Work scheme and getting a new bicycle from the company. Can you explain how this scheme works?

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Answer

The cycle to work scheme is part of the Governments Green Transport Plan and was first introduced in 1999. The plan aims to cut congestion on the roads, improve the health of the nation and have a positive impact on the environment.

The cycle to work scheme has seen well over 1,000,000 people across the UK save money on a bike and/or accessories to use when cycling to work.

First introduced over 20 years ago, the intention behind the scheme is to encourage employees to cycle to work by giving them access to a bike and related safety equipment in a tax efficient manner. The idea is that encouraging more employees to cycle to work should improve the health and productivity of the workforce.

For the purposes of a Cycle to Work scheme, the bike (and any equipment) is hired to the employee for a period in exchange for a monthly payment. At the end of the period the employee can either return the bike, extend the hire period or purchase the bike.

Employees save tax because the scheme allows them to give up some of their salary in exchange for the use of the bike. This approach of salary sacrifice allows the employee to pay for the use of their bike out of their gross, pre-tax pay. Total savings of up to £420 are possible for higher rate employees. In turn, their employer saves on the costs of employers’ National Insurance and the Apprenticeship Levy on the amount of salary sacrificed.

Following changes to salary sacrifice in 2017, the provision of bicycles and cycling safety equipment is one of the few benefits in kind for which a salary sacrifice can be made without a benefit in kind tax charge arising on the employee.

New legislation introduced by the government in June has widened the opportunity for electric bikes to be used under the scheme. As an electric bike can be more expensive than a traditional bike, the new guidance will make it easier for employers to provide bikes which have a value of more than £1,000.

While there is no limit for tax purposes on the value of the bike that can be provided, many schemes are effectively limited to £1,000 due to Financial Conduct Authority (FCA) regulations. The hire of the bike to the employee by the employer creates a consumer hire agreement, entitling the employee to certain rights and protections. Without specific authorisation from the FCA, most employers cannot provide goods to their employees worth more than £1,000. An employer who is already FCA regulated for another activity cannot even do that, as the £1,000 exemption does not apply in that case.

If the employer does not want to obtain such authorisation themselves, then the new guidance confirms that they can provide a Cycle to Work scheme through an FCA authorised third party. With the relevant FCA authorisations in place, there is then no limit to the value of the bike and related equipment that can be provided through the scheme. This then allows employees to opt for a more expensive electric bike to deal with any pesky hills on the way to work.

The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Contact Feargal

Feargal McCormack / Managing Director

f.mccormack@pkffpm.com

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