Cycle to Work Scheme: the tax-free loan scheme you should grab in 2013
The Cycle to Work Scheme – launched in 1999 to promote healthier journeys to work – is a tax exemption that lets firms lend bicycles and cycle safety equipment to staff as a tax-free benefit.
Employees can save up to 42 per cent in income tax and National Insurance contributions on a new bike and accessories for cycling to work.
This is definitely something worth considering for your business. The tax-free purchase of a bicycle and equipment could be worth several hundreds of pounds, and with public transport costs rising above inflation and congestion charging an issue, why not consider the Cycle to Work scheme for your business.
Employers of all sizes across the public and private sectors are eligible. To qualify for tax exemption, cycles and cyclists’ safety equipment loaned by the employer under the scheme must be available to employees. Employees that already have a bicycle but need equipment are HMRC has recently clarified, eligible to purchase equipment only.
What value of equipment can be supplied?
There is no limit to the total value of equipment including the cycle, but the Office of Fair Trading (OFT) has advised that consumer credit licenses will cover schemes up to a value of £1,000.
What are the conditions of the Tax Exemption?
- That ownership of the equipment is not transferred to the employee during the loan period;
- Employees use the equipment mainly for qualifying journeys, which means a journey, or part of a journey between home and the workplace, or between one workplace and another;
- Employees are not expected to keep mileage logs.
What about a Mileage Allowance?
Employers can pay up to 20 pence per mile tax free to employees who use their own cycles for business travel. Employees cannot claim the 20 pence per mile tax-free mileage allowance for business travel if they use a cycle loaned to them by their employer.
How does a business set up a Cycle to Work Scheme?
An employer can simply buy a cycle and cyclists’ safety equipment and loan it to an employee for qualifying journeys to work.
What are the Benefits?
- Business Expense;
- The cost of providing equipment is reduced by claiming the VAT incurred under the normal rules;
- Capital allowance is available.
What is Salary Sacrifice?
A salary sacrifice is neither a deduction from salary nor a charge on salary; it is where the employee agrees to accept a lower amount of salary: the employee can receive the benefit in kind free of tax instead of salary on which tax and Class 1 NICs would be fully payable; the employer will not have to account for Class 1A NICs.
What about Employer’s NICs?
Costs of loaning equipment to the employee are offset through a salary sacrifice arrangement. The employer will save Secondary Class 1 NICs (at up to 12.8%) on the part of the gross salary sacrificed.
What about deductibility for the employer?
- The employer is able to treat the cost as a capital expenditure;
- Can claim capital allowance in the normal way;
- Will qualify for the Annual Investment Allowance (AIA)
If you’d like to know more about the benefits of this scheme, email or phone your account manager today for clarification.