To celebrate Wiggo’s epic victory in this year’s Tour de France, this month’s blog is devoted to things tax and cycling related.
First, the ‘Cycle to Work’ scheme. If employers lend their employees cycles or cyclists’ safety equipment free of charge, that benefit is exempt from tax and national insurance contributions provided that two conditions are satisfied:
- the scheme is generally available to all employees.
- use of the cycle or equipment by the participating employees must mainly be for journeys between home and work.
Cycle to work schemes often incorporate a ‘salary sacrifice’ (explained in my October 2010 blog) so that (a) the employer does not incur any costs and (b) those employees who use the scheme are not advantaged over those who do not. Schemes of this nature typically work along the following lines:
An employer chooses a bike shop providing a cycle to work scheme and signs up to the scheme.
Employees wishing to take advantage of the scheme visit a participating shop and choose a bike along with safety equipment of required.
Employees then complete a scheme application form provided by the bike shop which identifies the chosen bike. A copy of this form is provided to the employer. The employee will usually sign a bike-hire agreement at the same time.
If the employer approves the employee’s application to participate in the scheme they will complete their part of the bike-hire agreement and pay the bike shop the full retail price of the bike and equipment. The employee agrees to sacrifice an amount of salary which, together with National Insurance and income tax, equals the cost of the package (excluding the VAT element where this is recoverable by the employer).
The cycle shop operating the scheme will then issue a voucher, redeemable in the shop, to the participating employee. The employee presents the voucher to the bike shop in exchange for the bike package. Salary sacrifice then commences over the hire period (usually 12 to 18 months).
At the end of the hire period, the employer will normally offer the employee the chance to buy the bike and the equipment for a payment equal to its then market value (plus VAT), or the employee may pay to keep using the bike. HMRC have published guidance showing how they would expect the market value of a bike to be calculated on a sale to an employee at the end of the loan period.
An illustration of the possible savings to an employee:
A bike package worth £1,200 including VAT is provided through a salary sacrifice scheme to an employee who is a basic rate taxpayer. If the employer passes on the saving in employer’s National Insurance, the package will cost the employee £552 plus whatever he pays for the bike at the end of the hire period.
Here’s the maths:
£1,000 cost (net of VAT as the employer can reclaim this) less basic rate tax at 20% (£200) less employee’s NI at 12% (£120) and employer’s NI at 12.8% (£128).
Thankfully, – and somewhat surprisingly, given its track record – HMRC do not insist that employees keep detailed records of time spent cycling or miles travelled for the purpose of the ‘main use’ test.
And now a word about cyclists’ breakfasts. Under the Income Tax (Exemption of Minor Benefits) (Amendment) Regulations 2012 the tax exemption for breakfasts provided by employers to employees on cycle-to-work days is due to be removed with effect from 6th April 2013. The relief was one of many which the Office of Tax Simplification recommended should be abolished.
By the way, Wiggo’s daily calorie intake during the Tour de France was, reportedly, up to 9,000 calories. Quite a lot of taxable fry-ups. Where did he put it all?
Tax lawyer specialising in business tax, SDLT and VAT