How Limited Company Contractors Benefit From the Cycle to Work Scheme
In many major cities across the world commuters avoid walking or cycling for fear of the harmful effects of pollution. However, a report claimed that the benefits of cycling and walking ‘outweigh air pollution risk’ in most cities, especially in London.
Cycling to work is commonplace in The Netherlands, where there is almost one bike for every citizen. In other European countries, such as Austria, Denmark, Finland, Germany, Norway, Slovenia and Sweden, 81% of households own a bicycle. Whereas, in the UK on average only 40% of households own a bicycle (your child’s bike doesn’t count)!
Cycling is visibly more and more popular these days but did you know that besides the obvious health benefits the humble bicycle can also be of taxable benefit to your company? Yes, you can do it by participating in the Cycle to Work Scheme and here’s everything you need to know about it:
- What is the Cycle to Work scheme?
- What are the benefits of the Cycle to Work scheme?
- Who can take part in the Cycle to Work scheme?
- How can a company arrange the Cycle to Work scheme?
What is the Cycle to Work scheme?
The Cycle to Work Scheme (also referred to as the Bike to Work scheme) is a UK Government tax exemption initiative to promote healthier lifestyles whilst also reducing environmental pollution.
This scheme allows employers to loan cycles and safety equipment to employees as a tax-free benefit. The scheme is available to all employers including limited company contractors where they are the only director/employee of the company.
What are the benefits of the Cycle to Work Scheme?
The UK Government, employers and employees benefit from the Cycle to Work Scheme.
The Government – the scheme encourages commuters to cycle instead of driving or taking public transport which means less congestion, better air quality and a healthier society overall!
Employers – the scheme is a great employee benefit that encourages employees to stick with their employer for longer, increasing employee retention. Plus healthy employees take less sick days and are more productive!
Employees – the scheme allows employees to ‘borrow’ a bicycle and equipment as a tax-free benefit.
Who can take part in the Cycle to Work Scheme?
Employers of any size, across the public, private and voluntary sectors are eligible to run a Cycle to Work scheme. However, the tax and NI benefits are only available to staff who are treated as employees for tax purposes.
If you are self-employed, the Cycle to Work Scheme is not available to you. However, you may be able to claim tax back if you wish to use bicycles and cycling equipment for business purposes.
How can a company arrange the Cycle to Work Scheme?
If your employees are interested in the scheme, there are two options available for setting it up:
- You, as the employer, can purchase the bicycle and/or cycling safety equipment and loan the equipment to your employees as a tax-free benefit.
- You can set up a salary sacrifice arrangement Cycle to Work Scheme where employees reduce their salaries.
Regardless of the option you choose, as the employer, you can recoup the full cost of the bike and up to 13.8% of its value on top!
If you are a limited company contractor, as an employee of your company, you can also take advantage of the Cycle to Work Scheme but you do not have to make a salary sacrifice. You can also benefit from a number of other tax savings:
- It may be possible to reclaim VAT on the bike purchase, making it cheaper to buy
- The company’s Annual Investment Allowance can be used to get 100% tax relief on corporation tax
- As the bike is paid for from gross earnings, not personal income, there is a potential saving on income tax
- If you, as the contractor, buys the bike from your company – although the company will pay corporation tax on the sale – you can potentially make tax savings on the purchase
Employers of all sizes and industries are eligible to offer the Cycle to Work Scheme. If you would like to offer this benefit to your employees (or if you want to take advantage of it for yourself) book a free tax review to discuss how best to implement this into your organisation.
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