The cycle to work scheme encourages employees to cycle to work and allows employers to reap the benefits of a healthier workforce.
Employers of all sizes can set up a tax exempt scheme. Basically, employers can loan a cycle and associated safety equipment to an employee without the employee suffering a taxable benefit-in-kind charge.
In order to qualify for tax exempt status, a cycle loan scheme has to satisfy a number of criteria including:
- Ownership of the equipment is not transferred to the employee during the loan period;
- Employees use the equipment mainly for qualifying journeys; i.e. for journeys made between the employee’s home and workplace, or part of those journeys (for example, to the station), or for journeys between one workplace and another;
- The offer of the use of a loaned or provided cycle (i.e. one for which ownership is not transferred to the employee) is available across the whole workforce, with no groups of employees being excluded. This does not necessarily have to be through a Cycle to Work salary sacrifice arrangement.
Employers’ expenditure on purchasing cycles and associated equipment is treated as capital expenditure and the usual tax and capital allowances are available including the Annual Investment Allowance.
In theory there are no limits to the amount that can be invested although there may be limits set by the OFT consumer credit license that regulates the loan of cycles under this scheme. The current OFT limit per loan is £1,000.
At the end of the agreed cycle loan period the employee can continue to use the cycle equipment for qualifying journeys with no tax consequences, or, the employer can sell the equipment to the employee. To avoid any tax charge the sale must be made at current market value.