The cycle to work scheme was introduced to encourage cycling to work and reduce environmental pollution by providing tax incentives to employers and employees

In order to qualify for the relief, the following conditions must be applied:

  • The employer purchases the cycle (and any associated cyclist’s safety equipment) and then loans the cycle to the employee during the “loan period”,
  • Employees use the equipment mainly for qualifying journeys; i.e. for journeys made between the employee’s home and workplace, or part of those journeys (for example, to the station), or for journeys between one workplace and another,
  • The offer of the use of a loaned or provided cycle (i.e. one for which ownership is not transferred to the employee) is available across the whole workforce, with no groups of employees being excluded.

It may be, however, that the employer wants to recover the cost of providing the cycle and safety equipment loaned to the employee. Usually this would be done through a salary sacrifice arrangement. The employee will agree to a reduced salary (which would then be subject to less PAYE tax and NIC). The gross reduction per month could be the cost of the cycle divided by the loan period in months.

If after the loan period, the employee wishes to purchase the bicycle from the employer, this has to be done at market value and HMRC have provided an optional simplified approach to working out this figure, which is at a substantial discount to the original cost, as well as taking into account any payments made by the employee to the employer.

Note that the employer (if VAT registered) can claim input VAT on the original purchase but also will need to declare output VAT on any disposal. The purchase will be of a capital nature (an addition to fixed assets) and the employer will consequently be able to claim a deduction for the cost for income or corporation tax purposes.

David Wallace | Plus Accounting

Author: David Wallace, Accounts Assistant, Plus Accounting

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