Cyclists taking part in the Goverment-incentivised Cycle to Work scheme can still retain tax benefits after a recent HMRC ruling appeared to derail the initiative.
The scheme allows companies to loan bikes tax-free to employees through salary sacrifice, with participants paying a monthly sum.
At the end of the loan period (typically one year), the employer gives the employee the option to buy the bike for a fair market price. This has typically been around 5% of the bike’s new value, but HMRC has recently said that this vastly undervalues most bicycles and has tightened up its rules.
Instead, it has produced a sliding scale set of values for cycles (see table). It states that bikes bought for up to £500 are worth 18% of their original price after one year and, for those costing more than £500, 25%. After five years, the value will be negligible.
The changes apply retrospectively as well as to bikes purchased via Cycle to Work in the future.
Critics feel the changes will make the scheme less attractive to employees as their savings are reduced – the Cycle to Work Alliance is one group which is concerned the changes may erode the success of the scheme.
However, Richard Grigsby, director of Cyclescheme, one of the biggest providers, told The Guardian recently: “We decided to offer those who have taken bikes through our scheme the chance to extend the user agreement at the end of the first year. We take over the ownership of the bike and then lend it back to the employee for a further 31 months – for free.”
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