A few of your employees have expressed an interest in the cycle-to-work tax break and you’re also tempted to join them. However, there seems to be a mountain of information to plough through. Is there a simple option? Sam Scott discusses.
The legislation for the cycle-to-work tax break is unusually straightforward. It allows employers to provide a bicycle, with or without safety equipment, as a tax and NI-free benefit in kind. Three simple conditions must be met:
1. The employee cannot own the bike etc.
2. It is used mainly for qualifying journeys.
3. You offer the benefit to all your employees.
The tax break applies even if some employees choose not to take up your offer.
The trouble is the scheme is widely marketed through employee benefits specialist companies adding layers of complication to the simple tax break. The government also upped the stakes by making it one of the benefits which still saves tax when used as part of a salary sacrifice arrangement. This gives employers a lot to work through.
No cycle-to-work scheme required
At its simplest all you need to do is offer your employees use of a bike and procure as many as you need. The bikes do not all have to be the same value; you can give the employees a budget (perhaps linked to their seniority in the business) and let them choose. There is no limit on the value of bikes that you are allowed to provide.
After a while, the bikes can be offered for sale to the employees at a modest price. HMRC suggests acceptable values: 18% to 25% of cost after a one year, and just between £1 and 2% of cost after five years. Representing a cheap way to buy a bike tax efficiently. However, providing the bikes is an extra cost to the business notwithstanding that it can claim tax relief for their cost.
If you offer the bikes with a salary sacrifice, i.e., an employee gives up some of their salary in exchange for use of a bike, it can be made to be cost neutral to you (by using the tax and NI savings) and yet still leave the employee with a good deal.
But you should be aware that providing a bike in exchange for payment, i.e. the salary the employee gives up, constitutes a hire agreement. A corollary of this is that if the bike costs you more than £1,000 you’ll need to obtain a credit licence from the Financial Conduct Authority, unless you have one already for other reasons.
Where you use a salary sacrifice arrangement and want to avoid the extra admin involved with obtaining a consumer credit licence, you have two options:
1. If you want to procure and provide the bikes direct to employees make sure they cost no more than £1,000; or
2. Use an employee benefits provider which has a consumer credit licence. They will organise procurement of the bikes and handle the paperwork. A quick online search will give you plenty of choices. The drawback is that you will be charged fees for their services.
The simplest option is for your business to buy bikes and offer them for use (tax and N free) by employees who want to take part in the arrangement. However, this is an expensive way to do it. You can instead offer them under a salary sacrifice arrangement which can be cost neutral for you but still a good deal for your employees.