Join the Cycle to Work Scheme!
Given our name, The Peloton, bikes are understandably close to our heart! Cycling is a wonderful way of getting around and staying fit, all in an environmentally friendly way. The increased popularity of electric bikes only increases the advantages. They can also be a great way to save tax.
How it Works
– The company offer all employees the option to acquire a bike or an electric bike.
– The company can ask employees to cover some/all of the cost by means of a salary sacrifice scheme.
– The bikes must be used primarily for travelling between the employees’ homes and place of work. It’s not an issue if the employee doesn’t cycle all the way: cycling to the bus/train stop is sufficient. It’s also not a problem if the bike is used in the evenings or weekends for private use.
– The company can also offer to buy safety equipment such as helmets, light, bells, safety clothing and child safety seats. On board computers, specialist equipment and cycle training are sadly not covered.
Provided all the steps above are followed, the company can deduct the cost of the bike from its corporate profits. There is also no benefit in kind for the employee – zero tax and zero NIC.
The bike belongs to the business unless and until the employee agrees to buy it. So long as the employee pays full price, no tax or NIC arises at this stage either. HMRC have agreed a simplified approach for determining the value of a bike if/when an employee chooses to purchase it – see EIM21667A – Employment Income Manual – HMRC internal manual – GOV.UK.
Bottom Line – What’s the Saving? – The Example of John
John is a higher rate taxpayer earning £60,000 a year. He decides he wants to buy a £3,000 Brompton M6L in May 2022. He has two options:
– Use his salary. The tax and NIC on £3,000 of John’s salary would be £1,297.50.
– Take advantage of his company’s cycle to work scheme. John agree to reduce his salary by £62.50 for four years. At the end of this he’s paid the company the full £3,000. At the end of the 4-year period he could buy the bike off the company for just £210. Assuming he does, he’s saved £1,087.50 (£3,000 – £1,297.50 + £210) – in other words a 36.25% discount on the price of the bike.
Extra Savings for Business Owners
There’s no obligation to withhold the cost by means of salary sacrifice. A business owner could always choose to purchase a bike through the business, claim the corporation tax relief, and make it available to themselves for free. In this way a business owner can effectively extract profits tax free rather than paying up to 25% in corporation tax (from 2023) and up to 39.35% in dividend income tax (from 2022).
Key Takeaway – If you are a business owner who wants to buy a bike or an electric bike there is no question – definitely buy it through the company.
Finally, before pulling the trigger it’s worth double checking if your local Council are offering grants to reduce the cost of buying electric vehicles.