You’re thinking of offering a cycle to work scheme to encourage healthy and green habits for your workforce. A number of staff have asked if ebikes are covered by the scheme. Assuming they are, what are the tax and NI consequences?
Exemption
The cycle to work tax scheme enables employers to provide any type of bicycle plus safety equipment as a tax and NI-free benefit. No prior HMRC approval is required but the following conditions must be met:
- the bike isn’t owned by the employee
- it is used mainly, i.e. more than 50% of the time, for qualifying journeys; and
- you offer the benefit to all employees, it being irrelevant how many actually participate.
Tip. Qualifying trips include commuting, riding between workplaces and even a jaunt to the pub at lunchtime. Incidental private use is also allowed.
Ebikes allowed?
Other than the exclusion of a child’s bike, there are no restrictions on the type of bike offered. This includes ebikes. Safety equipment includes reflective clothing but additional accessories such as bike computers and power meters are excluded.
Tip. Although less desirable as a perk to employees, to reduce your costs you can operate a pooling system for bikes and the tax and NI exemption will still apply.
Limiting or reducing costs
You can reduce the cost to your business of providing bikes by using a salary sacrifice arrangement. This saves you and your employees NI. You can also reduce costs by making employees responsible for insurance. Most home policies provide cover for bikes owned or hired so there shouldn’t be an extra cost to the employee.
Trap. Employees who leave while using the scheme must pay off the remaining hire cost and return the bike.
Is there a limit?
While there’s no maximum on the value of the bike for the purposes of the tax incentive, watch that you do not fall foul of:
- the national minimum wage rules if salary sacrifice is used; or
- the Financial Conduct Authority’s requirements to have a consumer credit licence if the bike and equipment costs £1,000 or more, inclusive of VAT. The requirement can be avoided if you use a third party provider who has a credit licence, which they usually do.
Tip. If any of your employees are minors, you need an adult guarantor for the hire agreement.
Tip. Third party providers take away all the hassle, albeit at a cost.
Subsequent transfer to the employee
After a year or so the bikes can be offered for sale to the employees at a modest price as part of a separate transaction. HMRC operates a simplified procedure for valuing the bike in these circumstances, which avoids the difficulty of establishing a market value and will ensure no benefit in kind arises from any inadvertent underpayment. HMRC’s valuations are quite generous meaning a low tax and NI charge if the bike is transferred to an employee at the end of a contract.
While simple, buying the bikes directly and offering them for employee use (tax and NI free) is expensive. You can reduce this to zero by using a salary sacrifice arrangement. This also saves both you and your employees NI.
The next step
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.