What do David Cameron, Lance Armstrong, Boris Johnson and 60,000 Londoners have in common? They’re all enthusiastic cyclists (though Lance would be just a bit faster than most). Three weeks ago the Mayor of London, Boris Johnson, launched a new cycling scheme, sponsored by Barclays bank. Almost 60,000 people have signed up as members.
Between them they are making around 15,000 journeys a day. More than 250,000 journeys have been made on new hire bikes in London since the scheme was launched. More than 34,400 people are daily members at £1 a day, with 21,700 people paying £45 each for annual membership and 3,400 people opting for weekly membership at a cost of £5 for seven days use.
Many employers are echoing Mr Johnson’s call for greener and healthier travel by offering employees the opportunity to participate in the Cycle to Work scheme. HMRC has recently provided some guidance on the tax rules surrounding the scheme. If an employer lends or hires cycles or cyclists safety equipment to employees, the benefit of this is exemption from tax on employment income if the following conditions are satisfied:
- The cycles or equipment are available generally to all employees of the employer (this does not mean that every employee has to be provided with a bicycle or equipment, just that the offer of cycles or equipment is open to all employees if they wish to take it up); and The employees must use the cycle or equipment mainly for qualifying journeys (mainly commuting to and from work). Other use of the cycle, for instance pleasure use or use by members of the employee’s family will not disqualify the exemption provided that the other use is not the main use of the bicycle.
- Bikes are often sold to employees at the end of the hire period, which is usually 12 months, for their "fair market value". This has been taken as being 5% of the original value. HMRC states that the 5% figure is usually significantly less than the actual value of the bike and has issued new guidance to assist in fair valuations. Now, at the end of the hire period, employers can use the following valuation table to calculate the value of the bike. The changes will apply retrospectively to bikes already on loan as well as to bikes purchased via the scheme in the future.
|Age of cycle||Acceptable disposal value percentage /||Original price £500+|
|Original price of the cycle less than £500|
|6 years & over||Negligible||Negligible|
The aim of the guidance is to simplify the rules and encourage employers to join the scheme. However, there are concerns that it will, in fact, have the opposite effect and make the scheme less attractive as tax benefits will be less. Employers will be able to depart from the table if a bike is damaged. However, it is for them to explain satisfactorily to HMRC why the valuation should be less than that specified.
Note that the following recent decision in Astra Zeneca v HMRC in which the Court ruled that Child Care vouchers were subject to output VAT as they constituted a supply of services effected for consideration, it may be that other salary sacrifice schemes (such as Cycle to Work) may also be taxable for the same reasons. If you would like to find out more about how various salary sacrifice scheme changes are being revised in government policy.
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