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Limited Company Contractors: Tax-free bikes for work

18th May 2009

Did you know the Government has a Cycle to Work initiative? It’s operated through “Cycle scheme”. See www.cyclescheme.co.uk

It’s a tax exemption initiative which allows employers, in your case your Limited Company, to provide cycles and safety equipment to employees as a tax-free benefit. Technically speaking, employees (You the contractor) actually hire the bicycles from their employer (Your limited company), buying them at the end of the salary sacrifice period for a Fair Market Value payment. Your limited company will buy the bike and safety accessories at full retail price, including VAT which is reclaimed in the normal way, if applicable. The balance is recovered from a reduction in your gross salary, and your company also benefits from National Insurance contribution savings.

Cyclescheme supplies tax-free bikes through independent bike stores. There is a vast supplier network of over 1,200 independent bike shops involved in this scheme. You can choose any bike, including electric bikes, providing your chosen Cyclescheme partner can supply it. If your employer (Limited Company) wants to supply bikes costing over £1000 (retail price including VAT) then you will need a Consumer Credit License, and this costs £725, so we would recommend against this.

What is salary sacrifice and how are savings made?

With a salary sacrifice you pay back the loan on your bike, accessories and safety equipment from gross rather than net pay for the hire period (usually 12 months), allowing you to benefit from income tax and NI relief.

How much can I save?

Typical savings are between 30% and 50%, but the actual amount you pay depends on your personal tax band, Higher rate taxpayers will save more.

Your company will also gain tax relief via capital allowances on the value of the bike.

The bike and goods remain the property of your employer (Limited Company) until the hire period finishes. If the bike gets stolen you will be liable for any outstanding monies without any tax exemptions, so it's very important to make sure the bike is insured. You can obtain safety equipment, including Home Office-approved 'Sold Secure' D-locks and cable locks, as part of the scheme.

What happens at the end of the loan period?

Most employers (Your Limited Company) opt to sell you the bike and accessories, and you will pay the fair market value.

Do I have to use the bike for work?

You can use the bike however you like; a bike purchased under Cyclescheme should be used for work journeys at least 50% of the time. You don't have to cycle to work for a specified number of days throughout the year and you don't have to record your trips or mileage. You may not claim expenses for business trips made using the bike.

What's the process of getting a tax free bike for work through Cycle scheme?

The scheme uses a voucher system. Your limited company needs to enter into a contract with Cyclescheme by registering on line, then you as the employee need to sign an employee hire agreement that Cyclescheme supply. You visit your local bike shop for a quote on a bike and accessories, which you enter onto the cyclescheme extranet system. When cyclescheme receive the quote they will invoice your company, and provide a secure voucher once the hire agreement is signed. You take the voucher back to the bike shop to collect the bike.

Summary of how it works

• You register your company as an employer online
• You visit one of over 1,000 participating bike shops to select the bike and equipment that you want. You can search for the nearest partner stores online at cycle scheme. You will be given a paper quote, and you can use Cyclescheme's online tool to apply for your chosen package by entering the details online and requesting a secure voucher.
• Once you have requested a secure voucher, your limited company approves the request. Cyclescheme will send your company an invoice for the bike package, and a hire agreement is sent to you to sign as the employee. As soon as the bike is paid for by your limited company, the secure voucher is sent to you.
• Your hire payments are deducted from your gross monthly salary. Carrington will charge your company £5 per month to administer the salary sacrifice calculations if you are a client of ours.
• At the end of the hire period you pay a Fair Market Value payment to own the bike outright. You cannot agree this value in advance but it is likely to be in the region of 5% of the original value.
  

Register now!

Your limited company can register for the scheme online and receive all the info you need to get up and running. Visit http://www.cyclescheme.co.uk/employer,registeryourcompany.htm

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