Tax Insider Tips: Employee and Employers - Providing cycles
How to pay less tax is a question which is always on most people’s minds. However, working as an employee the opportunities to save the amount of tax paid is always going to be smaller than those who are self-employed or working within a family company, but there are still options for relief and exemption which should be taken advantage of.
These options make it possible for employers to implement tax-efficient remuneration strategies for the benefit of the worker.
We have created a book containing 101 Tax Tips for Employers and Employees that can easily be put into practice.
To encourage employees to cycle to work, employers can loan employees cycles and/or cycling safety equipment without triggering a benefit in kind tax charge provided that the following conditions are met:
there is no transfer of property in the cycle or any equipment provided; the employee uses the cycle or equipment mainly for qualifying journeys, and the cycles and/or equipment are made available to employees generally.
A qualifying journey is a journey between home and work or between two workplaces. This exemption allows the employer to meet the cost of the employee’s journey to work tax-free. However, HMRC has confirmed that use of the cycle for pleasure or by other members of the employee’s family will not compromise the exemption as long as this does not constitute the main use of the bicycle. HMRC do not require the employee or the employer to keep detailed records of the use of the bicycle; inspectors are instructed to accept that the test is met unless there is clear evidence that less than 50% of the use of the bicycle is on journeys other than qualifying journeys. Employees can also be provided with a voucher to hire a bicycle and safety equipment within the terms of the exemption. Safety equipment includes items such as helmets, bells, horns, reflective clothing and child safety seats. However, the exemption does not apply to cycle computers, waterproof clothing that is not reflective (so, if clothing is provided, it is tax-advantageous to ensure that it is reflective) and cycle training.
While the exemption is conditional on the opportunity to use an employer-provided bike being made available to all employees, it is not necessary that all employees take advantage of it for it to apply. Further, there is no requirement that all employees should have access to a bicycle for their sole personal use; the employer can operate a pool system as long as there is genuine availability for employees who wish to make use of a pool bicycle.
The exemption can be used in conjunction with salary sacrifice arrangements (see Tip 2) as part of a cycle to work scheme. Unlike many benefits, the alternative valuation rules do not apply where an employer-provided cycle or associated safety equipment is made available under a salary sacrifice or optional remuneration arrangement.
No tax charge arises on any subsequent transfer of ownership to the employee provided that the employee pays at least the market value of the cycle. HMRC allow a simplified approach to be used for valuing cycles at a percentage of their original value depending on their age at the time of disposal (see HMRC’s Employment Income Manual at EIM21667a). As long as the employee pays the acceptable percentage of its original value (which depends on the age of the cycle and whether or not the original price was more than £500), no taxable benefit arises.
Example: Employer-Provided Cycles
Imran’s employer is keen to encourage employees to cycle to work and to enjoy the associated health and environmental benefits.
Under the cycle to work scheme, employees can borrow a cycle and helmet from the employer for a period of two years. The cycles provided by the employer cost £400 when new.
At the end of the loan period, the employee can either return the cycle to the employer, or buy it for its current market value or for the value determined under the simplified valuation approach. For a cycle with an original value of less than £500 which is two years old, under the simplified valuation approach, as long as Imran pays at least 13% of the original value (in this case £52), Imran can take ownership of the cycle without triggering a tax charge.
As the conditions of the exemption are met, Imran can enjoy the use of the cycle tax-free.
Further, no tax charge arises on the transfer of ownership at the end of the loan period as Imran has paid the necessary amount. He can use the bicycle tax-free for two years, then buy it for £52 – a much cheaper option than buying the bicycle himself at the outset for £400.
This is an excerpt from our brand new book 101 Employer and Employee Tax Tips. For more ways to help reduce taxes paid as an employer and employee get the full scoop here: