As the weather turns more spring like, we would all like to spend a bit more time in the great outdoors. Ditching the car and getting on our bikes is, of course, great for our fitness, the environment and our wallets. But can it also reduce your tax bill? Well if you’re a business owner looking to buy bikes for your employees, or an employee looking to purchase a bike through a cycle to work scheme, yes it can!
Company owned bikes
A business can purchase bikes and bike safety equipment for the general use of it’s employees and receive full tax relief (VAT and corporation tax) on the purchase costs so long as:
- The bikes are available to all employees to use
- They are used at least 50% of the time for business use (including commuting).
This provision includes both traditional bikes and E-bikes, and the safety equipment provision includes:
- Cycle helmets
- Bells, horns and lights
- Child seats
- Reflective clothing.
The provision of bikes by the employer would not be a taxable benefit in kind so long as the conditions above are met.
There is of course a potential Covid-19 impact on the main use test where employees are temporarily working from home. HMRC says in this regard:
‘COVID-19 has changed working practices. Many employees who may have been provided with a cycle or cyclists’ safety equipment have increasingly been working from home. It may not, therefore, be possible for them to meet the ‘mainly for qualifying journeys’ condition necessary for this exemption to apply.
Provided employees have joined a scheme, with a cycle or cyclists’ safety equipment provided to them on or before 20 December 2020, the qualifying journeys condition will not be applied until after 5 April 2022.
Employees who have a cycle or cyclists’ safety equipment provided after 20 December 2020 will need to meet all the conditions for the exemption to apply.’
Cycle to Work Scheme
This enables employees to hire a bike (again either a traditional or E-bike) and / or cycle safety equipment from their employer. The hire costs will be deducted from their pre-tax earnings via a salary sacrifice arrangement, saving the employee tax and NI on the cost of the bike, while the employer will save employer’s NI. At the end of the hire period (typically 12 months), the employee will have the option to pay a lump sum to purchase the bike, extend the agreement, or give the bike back.
There are a few qualifying conditions:
- The bikes should be used at least 50% of the time for business use (including commuting).
- The offer to use hired bikes must be open to all employees, although this doesn’t have to be exclusively through salary sacrifice arrangements.
Cycle to Work schemes can be set up and administered directly by the employer, or the employer can use a third party scheme provider who will take care of the administration and compliance on behalf of the employer.
But I don’t need a new bike…
If you already own a bike you can still receive some benefit for using your bike for business travel (excluding commuting). An employer can pay up to 20p per mile tax free to an employee for business travel by bike; if you travel by bike for business and the cost isn’t reimbursed by your employer, then you claim tax relief for this from HMRC.