I've had my eye on an electric bike (an 'ebike') for a while.
The balmy (?!) summer months combined with the new 'COVID world' that we inhabit makes the prospect of hopping on a bike as a mode of transport more appealing than ever.
The 'electric' bit is not (wholly) due to my laziness or lack of fitness (!) but mainly due to my wish to use it for home to work commute - so, importantly, I want to be able to use it to rock-up at work without feeling all sweaty, red-faced and panting...
The problem is that many of the better ebikes - such as the Van Moof that I've had my eye on - are fairly pricey and so the decision becomes harder to justify.
But could this is be where the UK Cycle to Work Scheme comes to the rescue?
What is the Cycle to Work Scheme?
In a nutshell, the Cycle to Work Scheme was introduced as a tax efficient way to encourage bike usage by employees for their daily commute.
Currently over 40,000 employers have implemented the scheme helping more than 1.6 million workers get fit while commuting to work.
It works by the employer company buying the bike (recovering the VAT and getting tax relief on the net capital cost in the process) and then deducting 'hire' charge from the relevant employees' gross salaries - a form of 'salary sacrifice'.
The company can also buy and offer safety equipment such as protective helmets as part of the package.
This saves on income tax and employee NIC for the employee PLUS employer's NIC for the employer. A win-win.
Are electric bikes eligible?
You can use the Cycle to Work scheme for both electric (e)bikes and normal (push) bikes. Plus, importantly, the historical spend limit for the employing company of £1,000 (fairly cost prohibitive for most ebikes) has been increased in recent years.
This makes the scheme much more accessible and user-friendly.
How do the tax reliefs work?
As summarised above, there are tax benefits for both the employer and employee.
Employee tax savings:
The employee can 'pay' a monthly amount for the bike without putting their hands in their pockets as the payment can be deducted from their PAYE salary.
This payment for the bike reduces the gross amount subject to income tax. So the employees receives tax relief at their marginal rate of income tax: 20%/40%/45%.
The employee also has less income subject to employees NIC so saving tax at 12% or at 2% for higher rate payers.
Employer tax savings:
The employer can recover the VAT (if registered for VAT).
It can also claim capital allowances - so it can claim a 100% write-off against its taxable profits on the cost of the bike in the year of purchase (assuming the business still has some of its 'Annual Investment Allowance' available).
So a £2,400 retail priced bike will have 'cost' the company just £1,620 after taking into account the recovery of the £400 VAT and £380 corporation tax relief from the capital allowances that it can claim (£2,000 * 100% AIA * 19% tax rate).
The employer can then make further monthly savings on Employer's NIC at 13.8% via PAYE on the reduced net salary payments (after deducting the payment for the bike).
Bike ownership and usage
It is important that an employee does not 'own' the bike during the hire period. Although there can be an option for the employee to buy the bike at the end of the hire agreement (see further below).
The option of participating in the cycle to work scheme should be open to all employees.
The bike must also be used at least 50% for commuting to and from work.
Setting up a Cycle to Work scheme
There is no requirement to get pre-approval for your Cycle to Work Scheme from HMRC and the scheme is open to companies of all sizes.
However, there is a fair bit of legislation to navigate and the hire arrangement with the employee falls within the realms of consumer credit regulations and FCA requirements so it is normally best to use a recognised scheme provider such as:
There are others out there - this is just a selection.
Cycle to Work Scheme: Tricky VAT bits on salary sacrifice
There are also some tricky bits to navigate around accounting for VAT to be aware of particularly where there is a salary sacrifice arrangement - this is because the salary sacrifice is deemed to be consideration and therefore, VAT should be recognised on that element.
Here is a useful guide on calculating the VAT element:
How to value the bike at the end of the scheme for sale to the employee?
Don't forget to charge VAT if and when you sell the bike (if VAT registered) to the employee at the end of the hire agreement (if you gift it, this would represent a taxable 'benefit in kind').
HMRC provides some useful guidance on valuing the bike for final sale:
What if I am a sole director limited company with no employees?
In this case it is even easier.
You simply get your company to purchase and own the bike and it is made available for you to use by the company.
This touches on just some of the key issues that you should consider if you wanted to add bikes for employees as an added staff perk.