Saddle up with Cycle to Work scheme and save tax

Saddle up with Cycle to Work scheme and save tax

The Covid pandemic may have had one unintended benefit, making people think about their health and the impact on the environment.

Escaping lockdown for exercise meant going for a walk or run, or taking to two wheels, as the benefits of cycling once again came to the fore. Cycling is up by as much as 200 per cent during lockdown, Government figures show.

It has been over 20 years since the Cycle to Work scheme was introduced and the process still represents an opportunity to save cash, even though recent changes have tightened up the rules.

The scheme was introduced in 1999 with the aim of encouraging people to make healthier and more environmentally friendly lifestyle choices.

The scheme allows employees to spend tax-free money on bikes and equipment, making a claimed saving of up to 42 per cent on the overall value.

What is the cycle to work scheme?

The Cycle to Work scheme lets you buy a bike and equipment and pay it off over the next year in monthly instalments.

In theory, this is the ‘hire period’. After this, your company is technically allowed to take the bike back, or you can purchase it for ‘fair market value’ – which can be up to 25 per cent of the original value. In practice, there are several other (cheaper) options, and few employers charge the fair market value.

The saving is created by the fact that the payments are exempt from tax, hence the ‘up to 42 per cent’ saving. Of course, how much you save depends upon the tax bracket you sit in – higher rate earners will save more.

Regardless how much cash you save, you are always going to be getting an interest free loan, a plus for anyone.

To get a bike on the scheme, your employer needs to sign up to a provider.

It was previously believed that the maximum spend was £1,000, but the latest guidelines state that this is not the case, also confirming that e-bikes are not exempt.

You can use the bike and equipment to cycle to work and in leisure time. The guidelines do state that ‘at least 50 per cent of the cycle’s use must be for commuting to work purposes.’

If an employer lends or hires cycles or cyclists’ safety equipment to employees, the benefit of this is exempt from tax on employment income if the following conditions are satisfied:

  • the cycles or equipment are available generally to all employees of the employer (this does not mean that every employee must be provided with a bicycle or equipment, just that the offer of cycles or equipment is open to all employees if they wish to take it up) and
  • the employees must use the cycle or equipment mainly for qualifying journeys. ‘Qualifying journeys’ means the same as for the works bus exemption. Other use of the cycle, for instance pleasure use or use by members of the employee’s family will not disqualify the exemption provided that the other use is not the main use of the bicycle.

However, with Covid-19, many employees who may have been provided with a cycle or cyclists’ safety equipment have increasingly been working from home. It may not, therefore, be possible for them to meet the ‘mainly for qualifying journeys’ condition necessary for this exemption to apply.

Provided employees have joined a scheme, with a cycle or cyclists’ safety equipment provided to them on or before 20 December 2020, the qualifying journeys condition will not be applied until after 5 April 2022.

Employees who have a cycle or cyclists’ safety equipment provided after 20 December 2020 will need to meet all the conditions for the exemption to apply.

For more information or advice on matters relating to taxable benefits, contact our experts today.

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