Britain’s cycling success in the 2012 Olympics and Paralympics and the Tour de France gave bikes-for work schemes a boost. They were already a popular incentive for various reasons, including improving employees’ health and helping to reduce traffic pollution.
But one of the biggest draws is the tax breaks available when schemes are offered via a salary sacrifice arrangement. Employees can save on income tax and national insurance (NI) because their repayments on the bike are deducted from gross pay, while employers can save on NI and reclaim the VAT paid on the bikes and cycling equipment.
This includes safety equipment, such as helmets, reflective clothing, reflectors for the bike, lights, child safety seats, locks and chains, and puncture repair kits. Under the rules of the scheme, 50% or more of the bike’s usage must be for the user’s journey to and from work. It is possible to loan two bikes to one employee if, for example, he or she needs a cycle at either end of a train journey between stations and their home and place of work.
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Staff are responsible for sourcing the bike and equipment, up to a limit of £1,000, but they can choose one costing less than that. The employer will fund this on the employee’s behalf and thenlease it back to them over a period of 12 to 18 months.
Insurance is another consideration. Even though the bikes and equipment are owned by the employer, it may be more practical for the employee to include cycle cover under their own house and contents insurance, while notifying their insurance provider that they are in a bikes-for-work scheme.
At the end of the leasing term, the employer can give employees the option to buy the bike and equipment through a transfer of ownership process that is based on a market value payment set by HM Revenue and Customs (HMRC).
In January 2012, HMRC amended the rules governing the treatment of VAT through salary sacrifice and stipulated that VAT had to be accounted for on the monthly amounts paid by staff because it is viewed as the supply of a service. The hire of a bike therefore has a tax liability.
Initially, this was seen as potentially undermining the popularity of the bikes-for-work scheme, particularly because staff already pay VAT on the purchase price if they decide to buy the bike at the end of the leasing period.
However, bikes for work providers say scheme take-up has actually increased in the last 12 months as employers have gained a better understanding of the new rules and can communicate these more clearly with staff.
Significant savings can still be made by purchasing a bike through the scheme, not just those relating to tax and NI, but also by not using a car and therefore saving on fuel, insurance and any congestion charges.
What are bikes-for-work schemes?
These are tax-exempt initiatives to encourage staff to cycle to work. Introduced in the Finance Act 1999, they enable employers to fund bikes and safety equipment that are loaned to staff as a tax-free benefit.
Where can employers find out more?
More information is available from the Cycle to Work Alliance and cycling advice website Why Cycle?. The cycle to work scheme: implementation guidance can be downloaded.
Who are the main providers?
Leading providers include: Bike 2 Work Scheme, Busy Bees, Cyclescheme, Cycle Solutions, CycleSurgery, Evans Cycles, Halfords, Hargroves Cycles and P&MM Employee Benefits.
15% of employers introduced bike loans/bikes for work in the 12 months to March 2012
(Employee Benefits/Alexander Forbes Benefits research 2012, May 2012)
48% of employees would cycle to work more often if there were extra incentives or rewards for them to do so
(Human resources decision makers and business leaders survey, Nesta, October 2012)