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Cycle to Work Scheme Update

Newsletter issue - September 2010.

The cycle to work scheme allows employers to lend bicycles to their employees tax-free, and in some cases the employees can purchase the bicycle at the end of the loan period. However, the Taxman is looking carefully at abuses of this scheme...

  • Some employers treat the loan of the bicycle to the employee as part of the employee's salary and reduce their cash wages proportionately. This is known as a salary sacrifice, and the arrangement must be agreed with the relevant employee in advance. If bicycle are only provided to employees under salary sacrifice arrangements the whole cycle to work scheme may lose its tax exemption, as some employees cannot have their cash pay reduced due to the National Minimum Wage rate rules.
  • It is quite common for the employee to purchase the bicycle from the employer at the end of the loan period. However, the Taxman says that where there is an automatic transfer of the bicycle to the employee at the end of the loan period, the tax exemption for the cycle to work scheme is also lost.
  • The second problem with the transfer of the bicycle to the employee is how to establish the market value of the bicycle at that time. If the employee pays the employer less than the market value for the bicycle the difference is treated as employment income subject to tax and NI. As a top of the range sporting bicycle can cost several thousand pounds, the second hand value can be quite significant!

    The Tax Office have produced a table to help employers value second hand bicycles:http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm

Finally, remember, to qualify as a tax free bicycle, it should be used mainly by the employee for travelling to work and on work related business, although other personal use is permitted. An expensive touring bicycle that is never used for work related journeys will not qualify for the tax exemption.

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