Cycle to Work scheme is a UK Government tax exemption initiative introduced in the Finance Act 1999 to promote healthier journeys to work and to reduce environmental pollution. It allows employers to loan cycles and cyclists' safety equipment to employees as a tax-free benefit. The exemption was one of a series of measures introduced under the Government's Green TransportPlan. A Cycle to Work scheme does not require the prior approval of HMRC.
On 6 August 2010 HMRC issued a statement to clarify the fair market value, which should be charged if the employees want to take ownership of the bike at the end of the repayment. Some of the providers have always recommended continued use at no further charge as the best option to avoid any additional cost and remain within the scheme guidelines.
On 28 July 2011, HMRC published guidance stating that VAT needs to be accounted for on Salary Sacrifice payments for Cycle to Work from 1 January 2012. Employers can claim back VAT under some circumstances, but may no longer pass the VAT savings on to the employee.
Employers of all sizes across the public, private and voluntary sectors can implement a tax exempt loan scheme for their employees. The employees wishing to participate should be paid through the PAYE system. The scheme is not available to the self-employed or employees on the National Minimum Wage.
Eligible equipment includes cycles and cyclists' safety equipment. The tax exemption defines a "cycle" as 'a bicycle, a tricycle, or a cycle having four or more wheels, not being in any case a motor vehicle'. An electrically assisted pedal cycle can be included under the scheme.
Cyclists' safety equipment is not defined in the legislation.
There is no limit on the total value of the equipment including the cycle. It is possible to loan two cycles to one employee if, for example, that employee needed a cycle at either end of a train journey between their home and place of work.
However normally employers will wish to recover the cost of the equipment from the employee using a salary sacrifice arrangement. Under Consumer Credit Law, since the employee cannot own the bike to get the tax break, this arrangement constitutes a hire agreement.
An employer issuing a hire agreement will need to be regulated and authorised by the Financial Conduct Authority. However the FCA makes an exemption of up to £1,000 for cycle to work scheme agreements: This is why there is a limit of £1,000 on most schemes.
However for those who want a more expensive bike or an electric bike the Green Commute Intiative has a business model which means the employer doesn’t need to be authorised themselves. Green Commute Initiative is Regulated and Authorised by the FCA.
The employee can still makes the tax savings because the hire payments can be made from their gross salary via a salary sacrifice scheme.
Financial Conduct Authority (FCA)
Employers will require individual authorisation for cycle orders over £1000. The specific exemption for cycle to work schemes under the FCA also only covers orders up to £1000. However, not-for-profit bodies are also specifically exempt from FCA regulation under PERG 2.3.2, regardless of the value of the cycle. Other employers may also be exempt under the 'business test' which is defined in PERG 2.3.3. FCA regulation is only required where employers are operating a scheme 'by way of business', a term which relies on various tests outlined in the perimeter guidance.
Unless employers apply for FCA regulation, cycle to work hire agreements should not include any reference to being regulated under the Consumer Credit Act. The inclusion of such a statement may expose employers to consumer protection claims as the document may be considered to be misleading.
It is possible to run schemes in-house or purchase ready-made Salary Sacrifice and Hire agreements online. These save costs added by Cycle to Work scheme administrator services and allow the company to make a purchase direct from any supplier (employees' local bike shop) as a cash purchase. (Some Cycle to Work scheme vouchers are only for on items at full RRP and exclude sale items, resulting in a total purchase cost greater than the market value. However, one of the largest cycle to work providers will honour all sale prices.)
We work with:
Green Commute Initative: https://greencommuteinitiative.uk/
Bike 2 Work: https://www.bike2workscheme.co.uk/