If you use a bicycle to travel to and from a place where you are working you are able to claim some costs against profit in your business.
The rules are determined by the ownership of the bicycle.
Company owned
The Governments Cycle to Work scheme was introduced in the 1999 Finance Act.
The scheme allows an employer to loan employees a bicycle, cyclist safety equipment and clothing; all of which are tax deductible to the business and not a P11D expense to the employee provided that the bicycle remains the property of the company and that the main use (more than 50% of the time) is for business travel. There is no limit for the cost, but a consumer credit license from the Office of Fair Trading will need to be obtained for costs over £1,000.
The scheme is open to any size business and must be available to all employees within the business.
The main use of the cycle must be for qualifying business purposes.
If the main use were for personal travel then the tax exemption would not be applicable and the employee would pay class 1a NICs as a P11D expense.
An employer may loan an employee more than one bicycle, for example, one to use from home to the station and another to use from the destination station to the workplace.
Where a bicycle is sold to an employee, it has to be at true market value and qualification for the scheme will cease.
Setting up a scheme
There are two ways of setting up a scheme.
For Professional Contractors and Freelancers, you may simply purchase a bicycle and equipment in the company name and loan them to yourself.
The company will benefit from reclaiming the VAT and capital allowances and your director's salary may remain at a tax efficient level.
Example
Cost of Bicycle £750
Gross
Input VAT reclaimable (not on flat rate scheme) £97
Net Asset £653
Depreciation first year at 40% £261
Depreciation second year at 25% of net £98
Depreciation third year at 25% of net £73
Net book value in third year £221
Corporation Tax savings 21% x £432 = £91
Whilst the asset remains the property of the business, capital depreciation may be claimed regardless of whether the scheme is in use.
However, larger businesses may wish to recover the costs from their employees which they may do by using the salary sacrifice scheme for an employee.
A salary sacrifice has to written into the employment contract. Where an employee sacrifices salary in favour of the cost of the bicycle and equipment they will not be liable to Class 1a NICs.
Privately owned
A bicycle that is privately owned by an employee who travels to and from work may claim a mileage rate of 20 pence (2002-10) per mile under the Approved Mileage Allowance Payments (AMAP's) Government scheme.
Provided that the mileage rate is not above the approved rate the expense is not declarable on the P11D.
If the company pays a mileage rate below the approved rate, the employee may claim tax relief retrospectively for up to 6 years.
Where an employee is paid a higher rate than the approved rate, the amount has to be declared on the P11D and class 1a NICS will be applicable.
Input VAT may not be claimed as this is only applicable to HMRC advisory fuel rates, and a bicycle has no fuel costs!