< Go Back Cycle to work: Can my company buy me a new bicycle? Posted: Dec 13, 2019 The government
introduced "cycle to work" back in 1999. Broadly, this is an annual tax
exemption that allows a business to loan bicycles and cycle safety equipment to
employees as a tax-free benefit. This tax break has had a positive impact on
workplace health and employee motivation and has encouraged new groups of
people to take up physical activity. But can it work for small companies?
The "cycle-to-work" tax breaks apply equally to directors of one-person limited
companies as they do to regular employees of large businesses. This means that
the company (the employer) can buy a bike and bike safety equipment and loan it
to the director (the employee) for qualifying business journeys. There is no
requirement for a formal agreement to be drawn up and no need for prior
approval by HMRC.
The company can
purchase the bike directly and reclaim VAT, where relevant, on the purchase
price. For corporation tax purposes, a deduction may be claimed on the full
cost of the bike using the capital allowances annual investment allowance
(AIA).
The company can
also provide any safety equipment for the cyclist i.e. helmets, high visibility
jackets, cycle clips, and so on, and these will be treated as revenue
expenditure, eligible for corporation tax relief.
There are a
couple of conditions to be met in order to qualify for the deductions:
ownership
of the bike is not transferred to the employee during the loan period, so the
bike remains owned by the company; and the
equipment is used mainly for qualifying journeys. Broadly this means at least
50% business use - i.e. for journeys made between home and the workplace, or part
of those journeys (for example, to the station), travel to clients or for
journeys between one workplace and another. Note that
travel to work can include a permanent workplace, so the definition of what
qualifies as a work journey for providing tax-free bicycles is wider than the
normal travel rules.
For the
director/employee, there will be no taxable benefit-in-kind arising from the
use of the bike and there doesn't need to be a reduction in salary to offset
the cost of the bike. Therefore, the director's salary summary will remain
unaffected.
The director
potentially saves on income tax, because the bike is being funded with gross
fee income and not personal income. This could save between 20% - 25%, in
comparison with the bike being purchased personally, depending on the
director's earnings.
If the bike is
transferred into the director's personal ownership at a future date a taxable
benefit charge will arise based on the market value of the bike at that date.
This contrasts slightly with the normal rule that specifies that a taxable
benefit charge arises in the value of the bike at the time it was first
provided to the employee. Where the bike is transferred, the company will pay
corporation tax on the market price, but the director will have potentially
gained significant tax relief on the bike's purchase.
Note that the
company owns the bike, the cost of any repairs will remain a cost to the
company.
Mileage allowances
Along similar
lines to claiming mileage for using a private motor vehicle for business journeys,
it is also possible to claim mileage for bikes owned personally and used for
journeys to and from a temporary workplace. HMRC allow cyclists to claim 20p
per mile for business journeys.
On average, a
person who cycles an additional five miles to work and back each week will burn
up around 4,500 extra calories and reduce their carbon footprint by around 45kg
CO2. With such positive health benefits to be gained, coupled with the current
generous tax breaks on offer, swapping car journeys for pedal-power should be
well worth considering.
Partner note: ITEPA 2003, s
244; EIM 21664