Cycle to Work scheme
Encyclopedia
Cycle to Work scheme is a UK Government annual tax exemption
initiative introduced in the 1999 Finance Act
to promote healthier journeys to work and to reduce environmental pollution
. It allows employers to loan cycles
and cyclists' safety equipment to employees as a tax-free benefit. The exemption was one of a series of measures introduced under the Government's Green Transport Plan. A Cycle to Work scheme does not require the prior approval of HMRC.
On 6th August 2010 HMRC issued a statement to clarify the fair market value, which should be charged if the employees want to take ownership of the bike at the end of the repayment. The full statement including the matrix is available here:
http://www.hmrc.gov.uk/manuals/eimanual/eim21667a.htm
Some of the providers have always recommended continued use at no further charge as the best option to avoid any additional cost and remain within the scheme guidelines.
Recently some concerns have developed with regards to the employer reclaiming VAT on the salary sacrifice vouchers, however, its impact on the Cycle to Work scheme is yet unclear. An update from HMRC is expected shortly. Please click here for more details
system. The scheme is not available to the self-employed or employees on the National Minimum Wage.
can be included under the scheme.
Cyclists' safety equipment is not similarly defined in the legislation and a common sense approach should be taken to the equipment provided.
has advised that the group consumer credit licence will cover schemes up to a value of £1,000. To extend that, an additional credit licence is required.
- Ownership of the equipment is not transferred to the employee during the loan period;
- Employees use the equipment mainly for qualifying journeys;
i.e. for journeys made between the employees home and workplace, or part of those journeys (for example, to the station), or for journeys between one workplace and another
- The Cycle to Work scheme is made available generally to employees of the employer concerned and not confined to directors or offered to them on more favourable terms.
exemption, an employer can simply buy a cycle and cyclists' safety equipment, reclaim the VAT (if applicable), make use of the capital allowances and loan it to an employee for qualifying journeys to work. This arrangement means that the employee's normal salary arrangements are not affected. It may be, however, that the employer wants to recover the cost of providing the cycle and safety equipment loaned to the employee. Usually this would be done through a salary sacrifice arrangement.
Tax exemption
Various tax systems grant a tax exemption to certain organizations, persons, income, property or other items taxable under the system. Tax exemption may also refer to a personal allowance or specific monetary exemption which may be claimed by an individual to reduce taxable income under some...
initiative introduced in the 1999 Finance Act
Finance Act
In the UK, the Chancellor of the Exchequer delivers an annual Budget speech on Budget Day, outlining changes in spending, as well as tax and duty. The changes to tax and duty are passed as law, and each year form the respective Finance Act...
to promote healthier journeys to work and to reduce environmental pollution
Pollution
Pollution is the introduction of contaminants into a natural environment that causes instability, disorder, harm or discomfort to the ecosystem i.e. physical systems or living organisms. Pollution can take the form of chemical substances or energy, such as noise, heat or light...
. It allows employers to loan cycles
Bicycle
A bicycle, also known as a bike, pushbike or cycle, is a human-powered, pedal-driven, single-track vehicle, having two wheels attached to a frame, one behind the other. A person who rides a bicycle is called a cyclist, or bicyclist....
and cyclists' safety equipment to employees as a tax-free benefit. The exemption was one of a series of measures introduced under the Government's Green Transport Plan. A Cycle to Work scheme does not require the prior approval of HMRC.
On 6th August 2010 HMRC issued a statement to clarify the fair market value, which should be charged if the employees want to take ownership of the bike at the end of the repayment. The full statement including the matrix is available here:
http://www.hmrc.gov.uk/manuals/eimanual/eim21667a.htm
Some of the providers have always recommended continued use at no further charge as the best option to avoid any additional cost and remain within the scheme guidelines.
Recently some concerns have developed with regards to the employer reclaiming VAT on the salary sacrifice vouchers, however, its impact on the Cycle to Work scheme is yet unclear. An update from HMRC is expected shortly. Please click here for more details
Who is eligible
Employers of all sizes across the public, private and voluntary sectors can implement a tax exempt loan scheme for their employees. The employees wishing to participate should be paid through the PAYEPAYE
Pay as you earn or PAYE refers to a system of withholding of income tax from payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may also refer to withholding of the...
system. The scheme is not available to the self-employed or employees on the National Minimum Wage.
What equipment is included under the tax exemption
Eligible equipment includes cycles and cyclists' safety equipment. The tax exemption defines a "cycle" as 'a bicycle, a tricycle, or a cycle having four or more wheels, not being in any case a motor vehicle'. An electrically assisted pedal cycleBicycle
A bicycle, also known as a bike, pushbike or cycle, is a human-powered, pedal-driven, single-track vehicle, having two wheels attached to a frame, one behind the other. A person who rides a bicycle is called a cyclist, or bicyclist....
can be included under the scheme.
Cyclists' safety equipment is not similarly defined in the legislation and a common sense approach should be taken to the equipment provided.
What value of equipment can be supplied
There is no limit on the total value of the equipment including the cycle. It is possible to loan two cycles to one employee if, for example, that employee needed a cycle at either end of a train journey between their home and place of work. However please note, that the Office of Fair Trading (OFT)Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
has advised that the group consumer credit licence will cover schemes up to a value of £1,000. To extend that, an additional credit licence is required.
How does it work
The exemption removes the tax charge that would otherwise apply to cycles and cyclists' safety equipment loaned to employees provided the following conditions are met:- Ownership of the equipment is not transferred to the employee during the loan period;
- Employees use the equipment mainly for qualifying journeys;
i.e. for journeys made between the employees home and workplace, or part of those journeys (for example, to the station), or for journeys between one workplace and another
- The Cycle to Work scheme is made available generally to employees of the employer concerned and not confined to directors or offered to them on more favourable terms.
How to set it up
To take advantage of the tax and Class 1A NICsNational Insurance
National Insurance in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits...
exemption, an employer can simply buy a cycle and cyclists' safety equipment, reclaim the VAT (if applicable), make use of the capital allowances and loan it to an employee for qualifying journeys to work. This arrangement means that the employee's normal salary arrangements are not affected. It may be, however, that the employer wants to recover the cost of providing the cycle and safety equipment loaned to the employee. Usually this would be done through a salary sacrifice arrangement.