How to Stay Safe from HMRC
26 June 15 | By: Jas Jhooty
As part of the government’s green transport policy, employers can take advantage of the tax exemption for employer-loaned bicycles and cycling safety equipment. You can either create your own scheme or use one of the commercially run ones that are available.
The exemption applies to a bicycle and associated safety equipment, such as a helmet, as long as ownership of the equipment is not transferred to the employee, the bike is used mainly for home-to-work travel or travel between two workplaces and the scheme is offered to all employees.
HMRC doesn’t expect employers to keep detailed records of the time spent travelling or the miles cycled to ensure that the “main use” test is met. HMRC accepts that this is the case unless there is clear evidence to suggest that less than half the cycling time is on qualifying journeys.
A typical scheme operates along the following lines:-
As the employee is swapping taxable salary for a tax-free benefit under the salary sacrifice arrangement, they save tax at their highest rate (20%, 40% or 45%) and also employee’s NIC on the salary foregone. The employer also saves the full cost of employer’s NIC.
A company has 24 employees, four directors and 20 staff. In 2014/15 it offers the use of company paid-for bicycles to all its employees for the main purpose of travelling to and from work. Six of the employees take up the scheme. Tony, one of the directors, for instance chose a bike costing £450, a cycle helmet – £80, and accessories – £90; a total cost to the company of £620.
As Tony’s annual salary is £95,000 he pays tax at 40%. He sacrifices £500 of his salary for use of the bike. Tony saves tax at 40% of this, i.e. £200, and NI of 1%: £5. The company saves employers’ NIc at 13.8%: £69.
After four years Tony wants to buy the bicycle, helmet and accessories which are then worth £80. As long as Tony pays the company no less than this for them he won’t have a tax or NIC bill.
The purchase of the bikes constitutes capital expenditure, and as such capital allowances are available. The full cost can be deducted immediately up to the annual investment allowance limit. Otherwise, writing down allowances are given at 20%.
This is fine and there will be no tax charge as long as the employee pays the market value at that time. However, if they pay less than the market value, they will be taxed on the difference.
After say, a year, you can sell or give the bike to an employee. And while in the latter case this will count as a BiK, the amount chargeable to tax is quite small. HMRC even provides some guideline values.
If you require any further advice on how to implement a cycle to work scheme or on any other employment tax related matter, please do not hesitate to contact us.