The Government is encouraging employers to consider joining a Cycle to Work scheme to help ease pressure on public transport due to the COVID-19 pandemic.
The government-backed cycle to work scheme allows employees commuting to work to pay for bikes and related accessories via salary deductions from pre-tax income. This can result in tax and national insurance savings for both employees and employers.
The cycle to work scheme was introduced to try and encourage employees to cycle to work and reduce environmental pollution by providing tax incentives to employers and employees.
To qualify for the relief, the following conditions must be met:
• The employer must purchase the cycle and related accessories and then loans the cycle to the employee during the “loan period”
• The employee then uses the bike mainly for qualifying journeys; i.e. commuting to and from work
• The cycle to work scheme must be available to the whole workforce
The employer can recover the cost of providing the bike and accessories loaned to the employee via a salary sacrifice arrangement. Under this arrangement the employee will agree to a reduced salary (benefiting from less PAYE tax and NIC). The gross reduction in salary per month could be the cost of the cycle divided by the loan period in months.
The employee can then purchase the bicycle from the employer at the end of the loan period. This has to be done at market value, which is at a substantial discount to the original cost, as well as taking into account any payments made by the employee to the employer.
If the employer is VAT registered they can claim input VAT on the purchase of the bike, but its worth keeping in mind that they will need to declare output VAT on any disposal. In addition the bike will be of a capital nature and the employer will be able to claim a tax deduction.
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