Cycle to work scheme – what is it, how much can you claim, how does it work?
The cycle to work scheme is a government initiative designed to support and encourage employees to cycle to work. The idea behind the scheme is that this will contribute to healthier employees which has benefits for both the individuals themselves and the companies they work for.
How the scheme works
For those who are not Limited Company contractors the way the scheme works is that the employee sacrifices some salary for the use of the bike which is loaned to them by their employer. It is not deemed a benefit in kind to the employee and is therefore tax free. In addition, the employee can eventually buy the bike from the company. The cost to the employee is calculated according to HMRC approved valuation tables to ensure it does not attract a benefit in kind charge. Overall this can mean a significant cash and tax saving for the employee.
The employer company benefits financially from this with reduced income tax and NICs from the employee’s sacrifice of salary, reduced corporation tax and in some cases VAT relief.
Limited Company contractors and the cycle to work scheme
Limited Company contractors, as employees of their companies, can also take advantage of the cycle to work scheme but do not have to make a salary sacrifice. They can also benefit from a number of tax savings.
• It may be possible to reclaim VAT on the bike purchase, making it cheaper to buy
• The company’s Annual Investment Allowance can be used to get 100% tax relief on corporation tax
• As the bike is paid for from gross earnings, not personal income, there is a potential saving on income tax
• If the contractor buys the bike from their company – although the company will pay corporation tax on the sale – the contractor can potentially make tax savings on the purchase
Rules of the scheme
The scheme is not designed for personal bicycle use so the bike must be used more than 50% of the time for business travel purposes. Therefore, the employee must predominantly use the bike to get them to and from their workplace. The definition of ‘workplace’ is wider under the scheme than the usual definition for travel expense purposes, so travel to a permanent workplace is allowable.
If a contractor chooses to use their personally owned bike for business travel, mileage can be claimed at £0.20.
If the cycle to work scheme is an option you would like to explore further, speak with your contractor accountant who will be able to advise you on the most tax efficient way to benefit from this.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.