Last week the government launched its ‘fix your bike’ voucher scheme as part of wider plans to encourage cycling as part of a wider ambition to build a healthier and more active nation.
With most of us having spent some time under lockdown, it’s important to ensure we are all taking care of our mental and physical health, and cycling is a great way of achieving this. Cycling improves cardiovascular health, lowers blood pressure and boosts your immune system, and at a time where most of us feel anxious – it is an exceptionally good method.
With businesses starting to reopen and people returning to work, retailers are reporting increased sales of bicycles as commuters try to avoid public transport and look for alternative ways to travel.
Purchasing a bicycle can be a major expense for employees and this is where employers can help! You can offer your team the opportunity to cycle to work which will keep your team fit and healthy and is better for the environment. The government introduced ‘cycle to work’ way back in 1999, and under the government’s Green Transport Plan, HMRC allows employers to provide their team with bicycles and cyclists’ safety equipment tax free, as long as the scheme is available to all employees. At the end of the first-year employees can purchase the bicycle from their employer at the ‘market value’ which, according to HMRC, is usually 25% of the original cost. Employees therefore acquire bicycles at bargain prices, with the employer (AKA you) claiming full tax relief on the net cost to them.
With mental and physical health at the forefront of every employee and employers’ minds, this tax break can have an incredibly positive impact on workplace health and has been proven to boost employee motivation. The ‘cycle to work’ scheme applies to directors of one-person limited companies as well as employees of large businesses.
The way it works is that your company can purchase the bike and reclaim VAT on the purchase price. For corporation tax purposes, a deduction may be claimed on the full cost of the bike using the capital allowances annual investment allowance (AIA). The scheme isn’t just limited to the bike itself; the company can also provide the required safety equipment including helmets, high-vis jackets and these are also eligible for corporation tax relief.
To qualify for the deductions it is required that:
- Ownership of the bike is not transferred to the employee during the loan period – so the bike remains owned by the company; and
- The equipment is used mainly for qualifying journeys. Broadly this means at least 50% business use – i.e. for journeys made between home and the workplace, or part of those journeys (for example, to the station), travel to clients or for journeys between one workplace and another.
For your employees:
As the UK’s most popular benefit, the perk for your employees means they are able to obtain a bicycle and accessories for their commute through their employer (winning you major culture points) whilst spreading the cost over 12 months and making unbeatable savings through a tax break. Your employees are able to decide what they want, all you have to do is review their request and if they are eligible pay for the equipment. The employee receives their bike and starts their salary repayments.
In addition to obtaining the bike, employees can also be paid a certain amount of Mileage Allowance Payments (MAPs). These do not have to be reported to HMRC and are called ‘approved amounts’
To calculate the ‘approved amount’, multiply your employee’s business travel miles for the year by the rate per mile for their bike.
Type of vehicle | First 10,000 miles | Above 10,000 miles |
Bikes | 20p | 20p |
What’s in it for you?
Aside from major boss brownie points, as an employer, you will not only recover the full cost of the bike – you'll also generate an NICs saving up to 13.8% of its value (e.g. for every £1,000 spent the employer can recoup up to £1,138).
There are potential savings on income tax, because the bike is being funded with gross fee income and not personal income. This could save between 20% – 25%, in comparison with the bike being purchased personally, depending on your earnings.
Where employers are using the FSMA exemption, the bike and/or accessories remain the property of the employer throughout the hire period.
Lastly but most importantly, culture breeds success. If there is anything this pandemic has taught us, it’s that having a positive workforce and a close company culture is the key from getting you through the tougher times. Happy, healthy employees is the key to unlocking potential and productivity – could there be a better outcome than that?
If you would like to find out more or for any other tax, business or accounting advice, please email Yedidya Zaiden at yedidya.zaiden@raffingers.co.uk.
Yedidya is an Associate Partner at Raffingers, a top 100 accountancy practice that specialises in strategic business, tax planning and commercial solutions.