The better weather has finally arrived, and you are thinking about introducing a Cycle to Work scheme in your workplace. There are several options available to you including ready-made cycle schemes, the DIY alternative or a mixture of both. Bob Johnstone takes a closer look at the pros and cons.
Cycle to work exemption
You probably know or have at least heard about the cycle to work tax and NI exemption. It allows your business to provide employees, including directors, with the loan of a bicycle and cycling equipment, but without it counting as a taxable benefit in kind.
The main conditions are that:
• all your employees (with some exceptions, e.g. casual workers) must be offered availability to a bicycle, exclusive to them or a pool bicycle.
• they mustn’t own it.
• they must mainly use it for commuting.
In practice, HMRC takes a relaxed approach to the last condition and doesn’t expect you or your employees to keep a record of use.
Ready-made cycle schemes
It didn’t take long after the exemption was introduced for ready-made cycle schemes to appear and now you can take your pick of these online. The attraction of this type of scheme is that you don’t have to lay out the money buying the bicycles and equipment. Instead, the scheme provider owns them and hires them to you and in turn you make them available to your staff. They provide the hire contract for your employees, which is where the apparent price cap arises.
The tax exemption doesn’t cap the price of the bicycle, however, the Office of Fair Trading (OFT) says that any hire agreement for the use of one is covered by the Consumer Credit Act 1974. But to prevent each scheme having to apply for a consumer credit licence, the OFT created a group one which automatically covers the hire or loan of bicycles provided under a cycle-to-work scheme where their value doesn’t exceed £1,000.
Advice – You don’t have to use a ready-made cycle to work scheme to take advantage of the tax and NI exemption. Although, you might get a different impression from the advertising copy put out by some cycle to work scheme providers.
If your business buys bicycles and makes them available to employees and directors, without a hire or loan contract, the exemption applies without the consumer credit problem or price cap. For example, if you and a fellow director have your eye on a couple of road bikes costing say, £2,000 each, your company can buy them and make them available to you. While that’s a lot of money to lay out, there’s more help from HMRC.
Advice – You can reclaim the VAT and the remaining cost if the bike qualifies for a capital allowances deduction, which can save your company tax equal to 19% of the cost.
Mix and match
The exemption doesn’t require your company to offer bicycles on the same terms for all employees and directors. Therefore, you can use a ready-made scheme to provide a combination of lower value bikes plus you have the option of also sourcing more expensive bikes at the same time. This means that your company doesn’t have to find the capital to fund such a scheme.
Instead of using a marketed cycle-to-work scheme, which usually limits the cost of a bicycle to £1,000, your company can buy its own so there’s no price limit. The downside is having to finance the purchase. However, you can use both methods; your business can pay for the expensive bikes and use a ready-made scheme for the others.