Spring is in the air and you’re thinking about fulfilling that new year’s resolution to get fit. What better way than by getting on two wheels and bagging a tax break into the bargain. How should you go about it?
Summer’s here (well nearly)!
These days Britain is a nation of cyclists, perhaps not yet to rival the Dutch but we’re pedalling fast to catch up. And with summer on the way many fair-weather riders are looking forward to getting back in the saddle. But if your bike is looking a bit tired and needs replacing the cycle-to-work scheme is worth considering. It’s a little more flexible than its name suggests.
Cycle to work (and elsewhere)
Broadly, the cycle-to-work scheme means businesses can offer their employees, including directors, use of a bike that it owns or rents as a tax and NI-free perk. Naturally there’s a little more to it than that, but the basic conditions of the scheme are fairly simple:
- use of bikes must be offered to all employees, although to obtain the tax break it’s not necessary for all employees to take up the offer
- employees must not own the bikes. But they can be given to the employees or directors after a period of time. Alternatively, the bike can be sold to them at a price that results in no taxable benefit in kind (BiK)
- the bike must be used mainly for work-related journeys, e.g. to or from a workplace, to or from the station as part of a commute or even between branches, depots, etc.
Tip. The tax and NI exemption extends to cycle safety and protective wear provided by employers, e.g. helmets, gloves, etc.
HMRC’s guidance says employees aren’t required to keep detailed records and that tax inspectors should accept that the business use test is met unless there is clear evidence to the contrary.
End of the cycle
After a while you can sell or give the bike to the employee. There’s no set period for which the business must own it, but at least a year seems sensible. While the gift of a bike is a BiK, the tax bill is typically quite small. You can avoid it entirely if you sell the bike for no less than HMRC’s guide price.
Example. Using HMRC’s guide price, a bike which cost £500 (including VAT) when new can be given to an employee after one year and the taxable BiK is 18% of its original price, i.e. £90. For a 20% taxpayer that means a tax bill of just £18. The employer will have to pay £12 in Class 1A NI. If the bike is sold to the employee for at least £90 there’s no taxable BiK.