Tour de Office
A colleague has told you that his staff have in the past participated in a cycle scheme. However, his company is no longer offering the scheme citing “tax issues” as the problem. What are these tax issues?
Cycle2work scheme
Topical. With the Tour de France having been held in this country in 2007 there might well be an increased awareness of using bikes to get around and get fit/help the environment etc. Instead of you buying your own bike are there any tax savings to be had by having a company pushbike? Yes, under the Taxman’s Cycle2work scheme you and your company can make tax savings.
Scenario. Your company buys a £1,500 + VAT = £1,763 bike and loans it to an employee (you, perhaps). Your company can reclaim the VAT and claim Capital Allowances because it owns the bike. Bikes depreciate fast, and major retailers suggest a bike will only be worth about 3% of its new value after three years. At the end of the three years your company decides to get rid of the bike and offers it for sale at 3% of its original cost (i.e. £45 + VAT = £52.87). It could even sell it to the employee who borrowed the bike but is not allowed to say it will sell it to that employee (but that’s what happens in practice).
Employee’s tax savings. First, the employee saves VAT of £263. Second, the Cycle2work scheme is a salary sacrifice arrangement. So the employee saves tax and NI on the salary they sacrifice, which would be £1,500 x 33% = £495 for a basic rate taxpayer and £1,500 x 41% = £615 for a higher rate taxpayer. A higher rate taxpayer could get their £1,763 bike for £832.20 (£1,763 - £263 - ((£1,500 x 41%) + £52.8)) a saving of £930.80 or 53%. Not a bad discount.
Company’s tax savings. Your company would save employers’ NI at £1,500 x 12.8% = £192 and claim Capital Allowances on the bike which could save £1,500 x 20% = £300, or more if the company pays a higher rate of tax.
Tax issues?
Simple conditions. Yes, there are some conditions which the Taxman expects you to meet: (1) the company must be the owner of the bike, not you (as the employee), but this has little effect because you are allowed to take the bike home with you; (2) the bike should be used mainly for cycling between your home and work, and for travelling to business meetings; and (3) the bike should be available to the other employees to use, but a large man’s mountain bike may not be that comfortable for smaller employees to ride...
Mainly to work. The main condition for the employee (you) is that they must use the bike “mainly” to cycle to work. However, we are not aware that the Taxman has posted spies on all cycle routes to ensure no one abuses the system.
It’s seasonal. Obviously, cycling to work in the winter months is mostly out of the question because of weather conditions. So that leaves summer, autumn and next spring to get some Cycle2work in.
Why not park and ride? The legislation doesn’t say your journey to work has to be exclusively by bike. If you don’t live close to work you could drive to a convenient point, park the car, get the bike out of the boot and finish the journey to work as a cyclist, reversing the process in the evening.
The next step
For a summary of the Cycle2work scheme, visit http://tax.indicator.co.uk (TX 07.20.05).
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