To help employees with the cost of travelling to work employers can; subsidise travel on a local public bus service, lay on a works bus, or provide a cycle to work scheme.
The last option involves lending bicycles to the employees, who after a period of at least one year have the option of buying the cycle at a significant discount on the original price. Where the amount paid by the employee is within the range suggested in the table in EIM21667a there is no taxable benefit for the employee. A bicycle transferred after 5 or 6 years is deemed to have a negligible value.
The cycle to work scheme has been used to help employees to acquire desirable bicycles, but there has been an effective £1000 cap on the value of the bikes, as the loan of an asset worth more than that requires the employer to be authorised under article 36A of the Financial Services and Markets Act 2000.
However, the Government has announced a clarification of the rules. Where the employer appoints a FCA-authorised firm to hire out the cycles, the employee enters into a consumer hire agreement with that authorised lender and there is no limit on the value of the cycle which is the subject of the hire agreement.
The cycle to work scheme is frequently provided as part of a salary sacrifice arrangement, where the employee forgoes an amount of salary in return for the bicycle. Cycle to work salary sacrifice schemes are still tax efficient as they are excluded from the new salary sacrifice tax arrangements which came into effect on 6 April 2017.
Written by the Tax Advice Network