Can my employees benefit from the government’s cycle to work initiative?

A few days ago, one of our Swindon clients asked us whether he could take advantage of the Government’s Green Transport Initiative – Cyclescheme.

Under the Government’s Green Transport Plan, there’s a tax exemption which allows employers to provide cycles and safety equipment to employees as a tax-free benefit. Employees actually hire the bicycles from their employer, buying them at the end of the salary sacrifice period for a Fair Market Value payment.  The employer buys the bikes and safety accessories at full retail price, including VAT which is reclaimed in the normal way. The balance is recovered from a reduction in the employee’s gross salary, and employers also benefit from National Insurance contribution savings.

Employers can offer loans of cycles to employees under salary sacrifice arrangements, after the end of the loan period.  If ownership of the cycle is transferred to an employee after a period of use, a benefit would arise.  The transfer will be a benefit and the cost of that benefit is the market value at the date of transfer.   If a cycle is transferred to an employee at a nominal value (say 5 to 10% of the original retail price), then if the market value is higher, the employee will be taxable on the difference. The exemption from tax and NICs for loaned or hired cycles only applies where there is no transfer of the property in the cycle or equipment in question. This means that the exemption will cease to apply if ownership is transferred to an employee. Similarly, the exemption will not apply if any agreement builds in from the outset an automatic transfer of ownership to the employee at the end of the hire period.

If the employer lends or hires a bicycle or cycling safety equipment to an employee, there are no reporting, tax or NICs requirements if the following conditions are met:

• the bicycles or equipment are available to all your employees
• the bicycles or equipment are used mainly for ‘qualifying journeys’ as described below

A journey only counts as a qualifying journey in two situations:

• if all or part of the journey is between home and workplace
• if all or part of the journey is between workplaces

Business use needs to be a minimum of 50% and a mileage log needs to be kept.

Based on above, our client didn’t qualify, as his business operates out of his home office near Swindon and his business use would have been much lower than 50%.

In addition, you should be aware that VAT needs to be accounted for on Salary Sacrifice payments for Cycle to Work from the 1st January 2012.

If you wish to look into this further, you can register through the Government link below to determine if you qualify.

http://www.cyclescheme.co.uk/

 If you’re still unsure,  or if you would like us to help with the scheme for your company, please contact us.