The tax benefits of pedal power

The Cycle to Work scheme is a tax incentive aimed at encouraging employees to switch to greener transport for commuting. Employees benefit by getting a long-term loan of a good quality bike and related safety equipment, while your company can claim capital allowances on the expenditure. VAT can also be reclaimed if you are on the standard VAT scheme or if you are on the flat rate scheme and the total purchase (on a single invoice) is over £2,000 gross.
The bike and equipment remain the property of the company throughout the loan period, which means that the employee won’t have to pay personal tax on it, and while you can choose to operate a salary sacrifice scheme, in most owner-managed companies it is usually more tax efficient for the company to pay the expenses directly.  It’s then possible for the company to sell the bike to the employee at the end of the scheme.

The small print…

• You must make this scheme available to everyone in the company.
• The bikes must be used for at least 50% of the time on qualifying journeys, which means a whole or part of a journey between home and workplace or between one workplace and another place related to work. 
• A taxable benefit will arise if the bike and equipment is not used primarily for qualifying journeys, so it’s probably a good idea to instigate logs for all bikes in use, just in case HMRC ever wants to investigate.

Don’t forget insurance arrangements to cover both the bike and the employee using the cycle.

For more information visit: http://www.direct.gov.uk/en/TravelAndTransport/Cycling/DG_190101