020 7099 9297 info@5ra.co.uk

Why was the scheme introduced?

The Cycle to Work scheme was introduced to promote the use of cycles to encourage people to exercise and reduce pollution generated by commuting.

What is the scheme?

The Cycle to Work scheme permits an owner of a business to loan cycles and cycle safety equipment to employees tax free.

What are the benefits of the scheme?

Employees save money by getting the use of a bike at a cheaper rate than they would pay out of their net pay.

The Employer gets to offer a great benefit at a small cost and even saving on employers National Insurance Contributions (NIC).

Criteria of the Cycle to Work scheme?

There are 3 criteria to be met:

  1. Bikes and equipment must be offered to all employees; no section of the workforce may be excluded.
  2. Ownership cannot be transferred to the employee during the loan period.
  3. The equipment must be used mainly (over 50%) for “qualifying” journeys i.e all or part of journeys between home and workplace or between workplace and workplace.

FAQs

Q: Can I recover VAT on the cost of the bike?
A: Yes, you can but if you sell the bike you will also need to charge VAT on sale.

Q: How does the benefit to the employer work?
A: The employer can operate this as part of a salary sacrifice scheme giving the employer the benefit of reduced employer NICs (for every £1,000 spent this is a saving of £138).

Q: Is there a £1,000 limit per purchase?
A: There used to be a £1,00 limit but this no longer applies. However, if the value of the bike and equipment exceeds £1,000 FCA loan approval may be needed in which case it may be more beneficial to go through a Government-approved third-party such as cyclescheme.co.uk who would have this in place.

Q: Can ownership of the bike transfer to the employee?
A: Where ownership of the bicycle (worth over £500) transfers to the employee after 6 years there will be no benefit in kind (BIK) tax to pay. If it transfers earlier the valuation of the bike will need to be made using HMRC’s model to calculate the BIK:

Age of Bike Price Less than £500 Price more than £500
1 years 18% 25%
18 months 16% 21%
2 years 13% 17%
3 years 8% 12%
4 years 3% 7%
5 years Negligible 2%
6 years & over Negligible Negligible

If you would like to know more about this and other tax efficient schemes that are available to your business, please get in contact.