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Tax incentives

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Cycle commuting is a convenient way for people to fit exercise into the daily routine, and work-related travel by cycle helps ease congestion and is good for the economy and the environment. To help, the Government has introduced a range of cycle-friendly tax incentives for employers and employees.
A cycle commuter on his way to work
Commuting to work by bike can save time and money

Cycle to Work scheme

More and more employers are providing cycle/cycling safety equipment to their staff in conjunction with salary sacrifice arrangements, by subscribing to the Government's ‘Cycle to Work Scheme’.

Through this, the employee usually pays a monthly rental, which is deducted from their salary before national insurance and income tax. This means that their taxable income is smaller, so they pay less tax. The employee should use the bike mainly for commuting to and from their workplace (although using it for pleasure is not disallowed, this should not be its main purpose).

At the end of the loan period, the employer can invite the employee to buy the equipment. HMRC have issued guidelines on the final price, which is based on a valuation of the bike, given its age and condition etc.

On average, staff who opt for the scheme save up to 40% of the total cost of a new cycle.

VAT: VAT registered employers can reclaim it at their marginal VAT rate on the purchase of the cycle (or related safety equipment), and pass this on as an additional saving to staff.

In an announcement in 2011, HMRC made it clear that it expects employees to pay VAT on their salary sacrifice payments (although people who signed their agreements before July 27th 2011 – and which extend beyond 31st December 2011 – are not affected).  

VAT remains due, if a cycle is sold to an employee at the end of the loan period.

Reluctant employers? Some employers hesitate to introduce the scheme because they worry about the administrative burden. However, there are a number of companies – or ‘cycle scheme facilitators’ (usually, but not necessarily bike shops) - set up to help. They are very easy to identify through a search of the Internet.

Some employers are also concerned about encouraging cycling because they think it’s risky and that they could be held liable if an employee is injured. As we explain elsewhere, the benefits of cycling far outweigh the risks and cyclists cause very little harm to other road users. It also helps keep the workforce fit, reduces absenteeism and reduces an organisation’s adverse impact on the environment. Encouraging cycling is, therefore, the responsible thing to do. 

For more on the Cycle to Work Scheme, see:

The Department for Transport’s guide to the scheme

The Cycle to Work Alliance

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  • Cyclists' Touring Club (CTC): A company limited by guarantee, registered in England no.25185. Registered as a charity in England and Wales No 1147607 and in Scotland No SC042541

 

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