Transport Policy Sub-Committee
9th February 2006
Agenda item 12
TPSC/06/03
Bike4Work - Tax free discounted bike purchase scheme.
The scheme
A bicycle and accessories can be purchased by the employer and loaned back to the employee over 12 – 36
months, with a monthly payment being deducted from the employee’s monthly salary through a salary
sacrifice arrangement.
The purchase and loan can be tax exempt and not subject to national insurance contributions so long as:
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The bike is mainly used for travelling to or from work or for business use
The ownership of the bike is not transferred to the employee during the loan period.
The scheme is available to all staff and not defined groups i.e. managers etc
How does it work from the employers side?
To take advantage of the tax and Class 1A NICs exemption, an employer can simply buy a cycle and cyclists'
safety equipment, reclaim the VAT, make use of the capital allowances and loan it to an employee for
qualifying journeys to work. This arrangement means that the employee's normal salary arrangements are not
affected. It may be, however, that the employer wants to recover the cost of providing the cycle and safety
equipment loaned to the employee. Usually this would be done through a salary sacrifice arrangement.
A salary sacrifice is where the employee agrees to accept a lower amount of salary - usually in return for the
employer's agreement to provide some form of non-cash benefit (in this case the loan of cycle or cyclists'
safety equipment). For a benefit such as a loaned cycle, where there is a specific tax exemption, the
employee can receive the benefit in kind free of tax and Class 1A NICs instead of salary on which tax and
Class 1 NICs would also have been fully payable.
Where costs of loaning equipment to the employee are offset through a salary sacrifice arrangement, the
employer will save Secondary Class 1 NICs (at up to 12.8%) on that part of the employee's gross salary
sacrificed.
Employers who purchase cycles and cyclists' safety equipment for loan to their employees will be able to
treat the cost as capital expenditure and claim capital allowances in the normal manner.
From the employers point of view as long as it is a business asset the employer can continue to claim capital
allowances regardless of how long it is used in the cycle scheme.
What does the employee have to do?
The employee gets to choose the bike and accessories. They should insure the bike as the lease agreement
would continue even if the bike was stolen or damaged. They must also maintain and bike and keep it in
good condition.
The impact of the scheme on an employees potential to claim benefits may need to be established.
At the end of the loan period there is no automatic entitlement for the employee to take ownership of the bike
and accessories. The employer cannot actually say that the employee can purchase the bike and accessories
at the end of the loan period as this would make it a Hire purchase agreement which is taxable as opposed to
a Hire agreement which is not.
The employer can choose to make the bike and accessories available for sale at the end of the loan period to
employees at a % of the fair market value – guidance says around 5% of purchase price.
Employers must make it clear that they cannot commit themselves to selling the bike to the employer or to
his nominee. Any subsequent sale must be pursuant to a separate agreement, entered into after the conclusion
of the hire.
VAT is applicable on the purchase price and as it is not subject to tax relief and should be deducted from the
employees net salary.
Alternatively the employer can continue to let the employee use the bike and accessories without transferring
ownership so long as the bike continues to be used mainly for work purposes.
Committee is requested to consider whether such a scheme would be appropriate for introduction at the
University.