Cycling to work – keep it simple to avoid tax

Cycle-to-work basics

The legislation for the cycle-to-work tax break is unusually straightforward. It allows employers to provide a bicycle, with or without safety equipment, as a tax and NI-free benefit in kind. Three simple conditions must be met: the employee can’t own the bike etc., it is used mainly for qualifying journeys and you offer the benefit to all your employees. Note. The tax break applies even if some employees choose not to take up your offer.

Complications

The trouble is the scheme is widely marketed through employee benefits specialist companies adding layers of complication to the simple tax break. The government also upped the stakes by making it one of the benefits which still saves tax when used as part of a salary sacrifice arrangement. This gives employers a lot to pick through.

No cycle-to-work scheme required

At its simplest all you need to do is offer your employees use of a bike and procure as many as you need. The bikes don’t all have to be the same value; you can give the employees a budget (perhaps linked to their seniority in the business) and let them choose. There’s no limit on the value of bikes that you’re allowed to provide.

Tip. After a while the bikes can be offered for sale to the employees at a modest price. HMRC suggests acceptable values: 18% to 25% of cost after a one year, and just between £1 and 2% of cost after five years. That seems like a pretty cheap way to buy a bike tax efficiently.

Trap. Providing the bikes is an extra cost to the business notwithstanding that it can claim tax relief for their cost.

Tip. If you offer the bikes with a salary sacrifice, i.e. an employee gives up some of their salary in exchange for use of a bike, it can be made to be cost neutral to you (by using the tax and NI savings) and yet still leave the employee with a good deal.

Trap. Providing a bike in exchange for payment, i.e. the salary the employee gives up, constitutes a hire agreement. A corollary of this is that if the bike costs you more than £1,000 you’ll need to obtain a credit licence from the Financial Conduct Authority, unless you have one already for other reasons.

Cycle-to-work options

Where you use a salary sacrifice arrangement and want to avoid the extra admin involved with obtaining a consumer credit licence, you have two options:

• if you want to procure and provide the bikes direct to employees make sure they cost no more than £1,000; or

• use an employee benefits provider which has a consumer credit licence (most do these days). They’ll organise procurement of the bikes and handle the paperwork. A quick online search will give you plenty of choices. The drawback is that you’ll be charged fees for their services.