As an employer, if you offer bicycles (lent or hired) to all of your employees, it does not count as an expense or a benefit. This means that you do not have to deduct or pay tax or National insurance on them, or report them to HMRC. However, if you are doing this on an individual basis, then it will have to be reported.
This process is regulated through the ‘cycle to work’ scheme, which you can use to encourage your employees to cycle to and from work.
Getting your employees cycling to work for shorter journeys, or as part of longer journeys, produces substantial benefits.
For your employees, it means cheaper travel and better health. Illness as an outcome of physical inactivity costs the NHS up to £1 billion per year, with further indirect costs calculated at £8.2 billion. The health benefits of cycling are massive and could help the entire nation in balancing work and activity.
For businesses, it can lead to increased productivity, since employees will turn up to work feeling more energised and positive- exercise is proven to release feel good endorphins!
For society as a whole it means lower congestion, better air quality, and vibrant, attractive places and communities.
For the environment, it means less pollution from C02 emissions.
The scheme can be operated using the salary sacrifice process, which is the most popular choice among employers.
Salary sacrifice is where your employee agrees to give up part of their pre-tax salary in exchange for a benefit from their employer, in this case, the hire of a bicycle for active travel and/or safety equipment.
There will also be a separate hire agreement, which may or may not be regulated by the FCA. This will typically be between the employee and the employer, who has either purchased the equipment or leased it from a third party (such as a retailer or a specialist leasing firm). The employee pays for the hire via the salary sacrifice arrangement with the employer.
In some cases, the hire agreement may be between the employee and a third party, such as a scheme provider, who hires the goods to the employee and is remunerated by the employer from the salary sacrifice proceeds.
There are two alternatives to the salary sacrifice version of the scheme: loan schemes or pooled schemes.
Loan scheme- This consists of providing a loan to an employee to purchase a bicycles for active travel and/or safety equipment. This is similar to offering an advance of salary to employees for purchasing rail season tickets. Loan schemes, including on an interest-free basis, may be subject to regulation by the FCA. Whether a loan scheme meets the criteria to be exempt from regulation will depend upon the nature and duration of the loan. If in doubt, you can contact Gow & Partners for advice. If the loan is not exempt, you will need FCA authorisation.
Pooled scheme- This is a tried and tested option for supporting staff in their commuting and for inter-site and business trip travel which is not currently being well served by public transport. At its simplest, you can purchase a suitable fleet of bicycles for active travel and make them available to employees either on a one-to-one or a pool basis. Work place schemes should focus on attracting people who currently travel on less sustainable and less active modes, such as their cars, between local meetings or work sites. bicycles for active travel should be easily accessible both in terms of position, close to where they are needed and are securely stored and maintained.
If the scheme meets the relevant criteria it can benefit from a tax exemption. Since a portion of the salary is foregone, the employee pays less tax and National Insurance Contributions (NICs), and the employer is able to save on employer NICs at 13.8% and Apprenticeship Levy at 0.5% (where applicable) on the amount sacrificed.
For more detailed guidance and information, see the government’s cycle to work scheme guidance for employers.
If you need any assistance in implementing the scheme for your business, then do not hesitate to get in touch with our team of accountants. Simply call 01254 589799 for a friendly chat. Alternately, drop us an email at email@example.com.