Pedal Your Way to Tax Savings: The Cycle to Work Scheme for Limited Companies

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The ‘Cycle to Work’ scheme is an annual tax exemption allowing businesses to loan employees bicycles and cycle safety equipment as a tax-free benefit. The scheme has positively impacted workplace health and motivation and encouraged people to engage in physical activity. But is this scheme suitable for limited companies?

Directors

The ‘Cycle to Work’ tax breaks apply to directors of one-person limited companies in the same way as they do to regular employees of larger businesses. This means the company (the employer) can purchase a bicycle and any required safety equipment and then loan it to the director (the employee) for qualifying business journeys. There is no need for a formal agreement or prior approval from HMRC.

Purchasing the Bicycle and Safety Equipment

Your company can directly purchase the bike and reclaim VAT (if applicable) on the purchase price. For corporation tax purposes, a deduction can be claimed on the total cost of the bike using your capital allowances annual investment allowance.

The company can also purchase and provide safety equipment for cyclists, including helmets, high-visibility clothing, cycle clips, and other items. These are treated as revenue expenditures, eligible for corporation tax relief.

Conditions for Qualifying Deductions

To qualify for the deductions, certain conditions must be met:

  1. Ownership of the bike must not be transferred to the employee during the loan period. The bike must remain owned by the company.
  2. The equipment must be used primarily for qualifying journeys, meaning the bike should be used for at least 50% business purposes. Examples include journeys between home and work, travel to clients or travel between workplaces.

Gov UK: Expenses and benefits: bikes for employees – GOV.UK (www.gov.uk)

HMRC internal manual – Employment Income Manual – EIM21664 – Particular benefits: exemption for bicycles: https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21664

Tax Implications for Employees and Directors

There is no taxable benefit-in-kind for the employee using the bike, so there is no need to reduce their salary to offset the bike’s cost. The director could potentially save on income tax, as the bike is funded with gross fee income and not personal income, resulting in a 20-25% saving compared to purchasing the bike personally.

Transferring Ownership and Mileage Allowances

If the bike is later transferred into the director’s personal ownership, a taxable benefit charge will arise based on the bike’s market value at that time. When the transfer occurs, the company will have to pay corporation tax on the market price, but the director may have gained significant tax relief on the bike’s purchase.

As the company owns the bike, it is responsible for the cost of any repairs. Mileage allowances can be claimed for personally owned bikes used for journeys to and from a temporary workplace, similar to claims for privately owned cars used for business journeys. HMRC allows cyclists to claim 20p per mile for business journeys.

Health and Environmental Benefits

Cycling five extra miles to work and back weekly will burn around 4,500 extra calories for the average person and reduce their carbon footprint by approximately 45kg of CO2. The health benefits and the generous tax breaks make it worthwhile to consider swapping your car for a bike for work or work-related meetings.

We can help

If you’re a director of a limited company and would like to learn more about how you can benefit from the ‘Cycle to Work’ scheme, or if you need assistance with tax planning and compliance, please don’t hesitate to get in touch with our team of experts.

About Graham

Accountant specialising in tax, property, and estate planning. A regular speaker at landlord, property Investor, and later life planning events.

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