Cycling to work - keep it simple to avoid tax problems

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 the employer must offer the benefit to all employees.

Note. The tax break applies even if some employees choose not to take up the 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 the employer needs to do is offer their employees use of a bike and procure as many as needed. The bikes don’t all have to be the same value; the employer 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 can be provided.

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 between £1 and 2% of cost after five years. That seems like a pretty cheap way to buy a bike tax efficiently.

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

If the employer offers 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 (by using the tax and NI savings) and yet still leave the employee with a good deal.

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 more than £1,000 the employer will need to obtain a credit licence from the Financial Conduct Authority, unless they have one already for other reasons.

Cycle-to-work options

Where the employer uses a salary sacrifice arrangement and want to avoid the extra admin involved with obtaining a consumer credit licence, there are two options:

• if they 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 plenty of choices. The drawback is that the employer will be charged fees for their services.