Let the Taxman pay for your bike ride to work!
Under the Cycle To Work scheme an employee is allowed the tax and National Insurance free use of a bicycle for a period agreed between the parties but typically say three to four years.
It would normally be treated as a benefit in kind but in this instance the loan is free of income tax and national insurance. At the end of the term the employee would need to hand back the bike to the employer or more likely purchase it from them.
A purchase price at that point of say 10% or 20% of the original cost would seem possible as the second-hand value of bicycles is of course not very high.
Benefits of Scheme
The loan is free of income tax and national insurance. This would save each higher rate employee 41% of the market interest charged that would otherwise arise on the loan.
Often there is a Salary sacrifice arrangement between the employee and employer where the employee agrees to forgo salary over the life of the loan equivalent to the value of the bicycle at purchase.
Reclaim VAT at 17½% of the cost of the bicycle.
Capital allowances on the cost of the bicycle. Under present rules (possibly to change soon) this means the company would have been able to claim a tax deduction for 66% of the cost of the bicycle after three years. After six years this figure rises to 90% of the cost. Both this and the VAT saving can be passed onto the employee.
Conditions for the Scheme
Bicycle must be owned by the employer for the period of the loan. It cannot be transferred to the absolute ownership of the employee until the end of the loan period. Typically the employee might purchase this for market value at the end of the term.
The bike has to be used mainly for qualifying journeys. There is no statutory definition of “mainly” and the instructions to Revenue Officers in their manuals do state that employees are not required to keep detailed records!
The scheme has to be available to all employees on the same terms.
Please do get in touch if you want me to help you establish the scheme for your company.