TT244: The Cycle to Work Scheme
What is the Cycle to work scheme?
It is a tax exemption initiative introduced as far back as 1999 to promote healthier journeys to work and reduce environmental pollution. Employers can loan cycles and cycle safety equipment to employees as a tax-free benefit.
Employers of all sizes are eligible to join the scheme and the employers can loan cycles and equipment to their employees. The key point to note is that the bicycle and equipment are loaned to the employee. The equipment remains under the ownership of the employer and is hired to the employee as a tax free benefit.
Cycles and equipment may be provided to employees under a salary sacrifice option or simply loaned to employees. To qualify for the exemption the cycles and equipment loaned by the employer under the scheme must be available to employees generally with no groups of employees excluded.
The tax exemption
The exemption removes the tax charge that would otherwise apply on the equipment loaned to employees provided the following conditions are met:
- Ownership of the equipment is not transferred to the employee during the loan of the equipment
- Employees use the equipment mainly for qualifying journeys i.e. journeys between the employees’ home and work place or part thereof or journeys between one workplace and another.
At the end of the scheme the employee has the option to buy the bicycle and equipment from the employer. However, as with the purchase of any asset from an employer, this must be at “fair market value”. Many companies previously adopted an aggressive stance in assessing the market value of the asset at the end of the hire period with some artificially low market value assessments arising.
In 2010 HMRC issued a statement to clarify the fair market value that should be charged to the employees at the end of the loan period if they chose to take ownership of the cycle and equipment. Previously a number of companies had suggested that the full market value at the end of a 12 month period would be as low as 5% of the original price tag.
When determining the market value of the second hand cycle, employers can now choose to use a simplified approach to determine the market value. There are certain conditions to be met to allow adoption of the simplified approach including that the cycle qualified for the exemptions (as noted above) throughout the period since they were first provided and the main use of the cycles must have been for travel between home and a workplace or between one workplace and another. The simplified approach cannot be used for cycles with special value or unusual features e.g. antique or collectable cycles, specialist cycles built to order or cycles with an enhanced value as they have been ridden by a famous person or winner of a high profile race.
Employers can choose to use a lower value, but as is the case with any asset transferred to an employee, the valuation must be robust and the reasons for the basis of the valuation must be clearly documented including photographic evidence of the condition of the cycle which can be supplied to HMRC in the event of any challenge to the value applied.
The simplified approach allows for a %, as shown in the valuation table below, to be applied to the original price of the cycle on sale as new at the time first provided to the employee.
The valuation table
|Age of cycle||Acceptable disposal value percentage|
|Original price of the cycle less than £500||Original price £500+|
|**3 years **||8%||12%|
|**4 years **||3%||7%|
|**5 years **||Negligible||2%|
|6 years & over||Negligible||Negligible|
Despite the changes in the valuation method to be applied at the end of the scheme, the Cycle to Work scheme is still a popular incentive available to employers to adopt. It allows an employer to incentivize staff with a tax free benefit whilst also helping both the company and employees save money and at the same time to improve their individual health and reduce their environmental impact.Talk to Barnes Roffe today