Cycle to work scheme and tax relief

Our recent experience of lockdown highlighted the benefits of exercise and getting out into the great outdoors. From this, we have received a growing number of enquiries from employers seeking to provide bikes to their employees and directors. The cycle to work scheme can be a beneficial option to explore.

Summary

Here is a quick summary of the opportunities and rules. If an employer lends or hires cycles and cycle safety equipment to their staff, this is exempt from taxation provided that:-

1. The cycles are made available to all employees; and
2. The cycles are used mainly for qualifying journeys i.e. home to work including e.g. the ride to the train station. The term mainly is not defined but HMRC take the view that provided there is no clear evidence the non-work related journeys exceed 50%, the exemption can apply.

What about the steep hills and a bit of power-assistance? The government has defined an electrically assisted pedal cycle (EAPC) as a normal pedal bike – check this link for further explanation - and as such, the provision of an electric bike should not create a taxable benefit in kind.

Tax Relief

On top of this, the employer can claim up to 100% tax relief (annual investment allowance) and can reclaim the VAT on the purchase of the bike. The Cycle to Work scheme is something rather different and is a formal arrangement organized in tandem (excuse the pun!) with a salary sacrifice scheme and there are special rules. Further reading can be found here. Whilst there is no limit to the cost of an e-bike under the above scheme, the Cycle to Work scheme imposes a limit of £1,000 per bike. There are also further rules relating to workplace facilities e.g. showers, and mileage payments for use of an employee’s own bicycle which are currently 20p per mile. If a bicycle is provided outside these conditions it will most likely give rise to a taxable benefit in kind which is usually calculated at 20% of the cost to the employer of providing the bike and equipment. This will give rise to a tax liability for the individual and a Class 1A national insurance cost to the employer. Please get in touch with us or your usual Haines Watts contact if you would like more information.