Employees who use their own cycle for work (i.e. not to and from work) are entitled to 20p per mile, tax-free.
If an employer pays less than this, or no cycle mileage rate at all (which is not a good thing, of course!), an employee can still claim tax relief by contacting HMRC (Her Majesty's Revenue and Customs) directly.
For more, see HMRC’s guidance for employees who use their own vehicles for work
Lending or hiring cycles or cyclists’ safety equipment
If an employer lends or hires cycles or cyclists’ safety equipment to employees, the benefit of this is exempt from tax on employment income. The cycles or equipment should be generally available to all employees, and mainly used for travel between home and the workplace.
The exemption also covers the provision of a voucher for hiring bicycles and equipment.
The relevant legislation does not define exactly what is meant by ‘safety equipment’, but HMRC says that it includes such things as:
- Cycle helmets which conform to European standard EN 1078
- Bells, bulb horns and lights including dynamo packs
- Child safety seats
- Reflective clothing along with white front reflectors and spoke reflectors
It does not include:
- Cycle computers
- Waterproof clothing that is not reflective clothing
- Cycle training
See HMRC's Exemption for bicycles factsheet
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:
Employers who draw up a ‘green’ travel plan – a package of practical measures to reduce car use for journeys to and from work and for business travel – do not have to pay tax or NICs on offering staff:
- Cycles and safety equipment
- Workplace parking for cycles
Employers can provide a tax-free breakfast to cyclists on designated ‘Cycle to Work’ days, to encourage people to try cycling to work. However, this relief has been repealed and will no longer be available from 6 April 2013. The changes are set out in HMRC's Cycle to Work Days - Provision of Meals: Repeal of Relief