Cycle to Work Scheme
Posted on 15th April 2021 at 10:15
The Cycle to Work scheme has been very popular ever since it was launched by the government in 1999. Since then, this has usually taken the form of an annual tax exemption, with the business loaning bicycles and cycle safety equipment to employees as a tax-free perk.
The benefits of Cycle to Work
Lower CO2 emissions
Staff often arrive at work more quickly
Greater levels of energy, motivation and productivity
Better mental wellbeing
An excellent work package for employees
What about if I work alone?
If you’re the owner of a one-person limited company, you can still take advantage of the Cycle to Work scheme. It’s simply a case of the company purchasing the bicycle and any required safety equipment, then loaning it to you for business travel purposes.
This can be done without a formal agreement or seeking approval from HMRC, as you qualify as an employee of your own company.
How does it work?
Once your company has bought the bike, it can then reclaim the VAT as it would for any other qualifying purchase (providing the company is VAT registered). As for corporation tax, a deduction can be claimed on the full cost of the bicycle using your capital allowance’s annual investment allowance.
Don’t forget to also buy safety equipment such as a helmet, bicycle clips, high-vis clothing, lights and anything else required to keep you safe on the roads, as all of these can be claimed against too. These items are revenue expenditure and eligible for corporation tax relief, making it a highly tax-efficient scheme.
Conditions that need to be met
The bike and safety equipment must be owned by the business during the period of the loan and not transferred to the employee.
The bike and equipment must mainly be used for business purposes. In other words, at least 50% of journeys must be commuting to and from work, travelling to clients and suppliers, moving between workplaces etc.
If the bike is instead used mainly for non-work purposes, a benefit-in-kind charge will apply and the company must complete a P11D form.
Due to the company owning the bike, repairs must be paid by the company rather than the employee.
How does it benefit the employee?
Aside from the employee gaining access to a new bike, they also benefit from there being no taxable benefit-in-kind charge. This means that they can use the bike without their salary being reduced to offset the cost.
How does it benefit the director?
Due to the bike being funded with gross fee income and not personal income, the director could save between 20% and 25% on the cost of their own bike and equipment compared to buying it with personal funds.
What if I transfer ownership?
If you’re the company director and transfer the bike’s ownership from the company to yourself at any point, a taxable benefit charge will come into effect. This is calculated according to the bike’s market value at the time the ownership changes. The company then pays corporation tax on the market price.
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