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If the Olympic Games have motivated you to get back on your bike, the Taxman may be ready to support you through the cycle-to-work scheme. What is the process like, and are there any issues that directors should be aware of?
Cycle boom
Following Team GB’s Olympic triumph, cycling shops in the United Kingdom have reported a recent surge in sales. That got us thinking about how many of them were business purchases and if the companies involved took advantage of the tax and NI exemption that applies when providing bikes to their workers.
Cycle-to-work recap
The cycle-to-work (CTW) scheme allows companies to provide bicycles to their employees, including directors, without considering a benefit-in-kind (BiK) subject to tax or NI. But, of course, there are conditions; the CTW scheme’s primary requirements are as follows:
- All employees must be provided with bikes.
- The bikes must be used primarily for job-related travels, such as to or from a workplace, to or from the station as part of a route to work, journeys between branches, depots, and so on.
- Employees must not own the bikes (though they can be gifted or sold to the workers after some time).
Tip. The tax and NI exemption extends to cycle safety and protective wear provided by employers, e.g. helmets and high visibility jackets.
No records are required!
According to HMRC guidance, employees aren’t needed to maintain comprehensive records, and tax inspectors should assume the business use test is fulfilled “unless there is clear evidence” to the contrary.
And at the end of the road…
You may sell or gift the bike to an employee after a year. While this will count as a BiK in the latter scenario, the amount subject to tax will be little. The Taxman even provides some guideline values (see The next step).
Example.
According to the Taxman, a bike that costs less than £500 when new can be given to an employee after one year would trigger a BiK charge equal to just 18% of its original price, i.e. £90. This means an employee who pays tax at the basic rate (20%) would owe £18, and your company £12.42 in Class 1A NI. And don’t forget, once a bike is in the ownership of the employee, there are no conditions on how it has to be used.
Choice of bike
Bikes used in the scheme don’t have to be of equal value. So, for example, you could offer ones costing up to, say, £250 to employees, but directors could have a budget of £1,000 or more. But note that the Taxman’s approved transfer value is greater for bikes costing over £500. Even so, a director could take ownership of a £1,500 bike after one year and, as a 40% taxpayer, pay only £150 tax.
Tip. In these challenging times, you might not be able to offer free perks to employees or even directors. One solution is to set up the CTW scheme as a salary sacrifice. This means there will be no net cost to your company in providing the bikes, but all the tax advantages of the CTW scheme can still apply.
Employers can provide bikes as a tax and NI-free perk used mainly for business or commuting. There’s no requirement to keep records of business and private use. There is no financial limit meaning directors could choose expensive bikes with employees limited to cheaper models.