In previous articles, we have looked at how the Cycle to Work scheme benefits employees. In this article we discuss how the scheme also helps employers.
The Cycle to Work scheme is a government initiative to encourage people to cycle rather than drive to work.
Encouraging people out of their cars and into far greener forms of transport will help the UK achieve its carbon emission reduction targets.
As well as helping the environment, the Cycle to Work scheme brings real benefits to the employer.
A healthier and more committed workforce
Not only will many employees feel motivated by environmental concerns by the Cycle to Work scheme, many will appreciate the health benefits that regular exercise brings.
Employees that can cycle to work will also make considerable cost savings with fuel, wear and tear and depreciation costs of running their cars. Some may even only require one family car rather than two.
Offering employees the chance to join the Cycle to Work Scheme will help promote a happier and healthier workforce as well as helping the company reduce its carbon footprint and environmental impact.
Tax efficiencies of the Cycle to Work scheme
The Cycle to Work scheme is essentially a hire purchase agreement that allows an employee to buy almost any bike that they chose.
The employee then pays the hire charge for 12 or 18 months from his gross salary. At the end of the hire period, the employer can sell the bike as an asset or offer it to the employee who must then pay the fair market value to prevent liability for a taxable benefit.
An employer may wish to allow their employees to continue to use the cycles and cyclists’ safety equipment after the initial loan period has ended, without transferring ownership. there is no tax penalty for this as long as the employee continues to meet the conditions of the scheme.
There are considerable tax advantages to an employer with this arrangement.
The employer can reclaim 100% of the VAT input tax on the new bike and any specialist safety clothing that the employee may require.
The employer can also claim capital depreciation for the purchase of the cycles and safety equipment as these are treated as capital expenditures by the HMRC.
Small and medium sized companies can claim 40% depreciation on the bikes and equipment in the first year, whereas larger companies can claim on 25% allowances in the first year.
The HMRC does not need to approve a Cycle to Work scheme or to approve the salary sacrifice arrangements.