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What is the Cycle to Work Scheme and How is it Taxed?

By: J.A.J Aaronson - Updated: 17 Jun 2011 | comments*Discuss
 
Cycle To Work Scheme C2w Tax Salary

The Cycle to Work Scheme (sometimes referred to as C2W) is a government initiative aimed at encouraging fitness among the country’s workforce, while lowering carbon emissions. Introduced in the 1999 Finance Act, the scheme offers tax breaks to employers that loan cycling equipment to their employees as a benefit, or provide loans for employees to buy their own equipment.

How Does It Work?

The Cycle to Work Scheme can work in one of two ways. To begin with, employers may choose to purchase cycle equipment, including bikes and safety gear, that they then loan to their employees for the purpose of cycling to work. The purchase of this equipment can be offset against earnings for tax purposes. The loan of the equipment is also treated as a tax-free employee benefit, providing a further tax saving.

Alternatively, employers might choose to operate a salary sacrifice scheme. Under this arrangement, employers might foot the bill for a bike or other cycling equipment, with the employee giving up part of their salary in return. This means that the cost of the equipment can be spread over a long period of time, providing savings for the employee. Salary sacrifice schemes also present tax savings for employee and employer; employees have their income tax bills lowered as the salary is cut, while employers pay lower rates of National Insurance Contributions. Furthermore, if the employer is VAT registered any VAT levied on the equipment purchase can be claimed back.

Who is Eligible?

All employers are eligible to operate Cycle to Work Schemes, regardless of their size or the number of employees. However, in order for the tax exemption to be accepted by HM Revenue & Customs (HMRC), the scheme must be offered on the same basis to all employees. There may be no preference given to directors or other company officers.

Equipment permitted under the scheme is limited to bicycles and cycle safety kit. Safety equipment is not defined in the legislation; HMRC says that employers should adopt a “common sense approach” when considering what is permissible. According to the Revenue, repair equipment is also eligible, including puncture repair kits. Electrically assisted bicycles are also permitted. There is no limit to the amount that can be spent on the cycle equipment.

Limitations of the Scheme

It is important to note that there are a number of limitations concerning the way in which the equipment can be used. If the scheme operates outside these limitations, the tax exemption will not apply.

Primarily, the cycle equipment must be used mostly for qualifying journeys. These are journeys to and from work, or between work locations. Employees may use other means of transport and still qualify; for example, a bicycle could be used on the leg of a journey from home to a train station.

Secondly, if the employer is operating a scheme whereby the equipment is loaned to the employee, the employee may not assume ownership during the loan period. If this happens the tax break will not be valid.

If you are considering setting up a Cycle to Work Scheme and want information personalised to your business, you may wish to contact the Department for Transport.

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