The cycle to work scheme was introduced over 10 years ago, allowing employees to purchase cycles and cycling equipment as a tax-free benefit. The scheme is open to all employers who must make the scheme available to all employees generally, with no groups excluded, in order to qualify for the tax exemptions.
There are different rules for the self employed.
There is no limit on the total value of equipment loaned under the scheme which includes cycle helmets, pumps & repair kits, reflective clothing and mirrors. In order to qualify for the tax exemption, there are a number of conditions whch should be satisfied including using the cycle mainly for work use.
Strictly, ‘mainly’ is taken to mean more than 50% of the use of the bike relates to a qualifying journey and failure to stick to this rule could result in the loss of the associated tax benefits. Should the rules not be observed, the employer could have to report the benefit on form P11D and account for Class 1A NICs in the normal way. Also, the employee would become liable for the tax due on the benefit in kind.
To help employees tax advantage of this scheme, either the employer buys the cycling equipment and loans it to the employee, or the employer recovers the cost of the equipment via a salary sacrifice arrangement.
In a salary sacrifice arrangement, the employee can receive the benefit in kind tax free instead of salary (on which tax and class 1 NICs would have been payable). Similarly, as the benefit is covered by a tax exemption, the employer will not have to account for Class 1A NICs.
Another tax issue to consider is the ability of the employer to claim capital allowances on the cost of expenditure. Currently most employers could claim 100% of the cost of any expenditure under the Annual Investment Allowance which stands at £250,000 until 1 January 2015.
There are other issues to consider in relation to salary sacrifice arrangements, such as the National Minimum Wage, entitlement to benefits, insurance and VAT.
The Department for Transport has further guidance.