help choosing new bike.

[ITSPETEINIT]

Aha!

Hi Pete,

I agree with most of what you say, however your first point (if I interpret it correctly, and forgive me if I have not!) is not correct. A company can indeed buy a bike and simply lend it to an employee and this is not taxable as a benefit in kind. This is how the relevant page on the Dept for Transport web site sets it out:

"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."

I know sole traders are not eligible for Cycles to Work, however my reading of the DfT website is that the paragraph I have quoted is not actually part of the scheme. Therefore I feel it may well be applicable to a sole trader.

Have a look at the link and tell me if you read it differently.

Frank

Hello Frank:Interesting. It seems you are right. The 'encouragement' for employees to cycle to work, or part of the way (to the station) is not to treat the loan of the cycle as a 'benefit in kind'. However, there is a qualification:
"The tax exemption only applies when an employee mainly uses the cycle and cyclists' safety equipment for qualifying journeys. A qualifying journey for an employee means a journey, or part of a journey,

* between his or her home and workplace, or
* between one workplace and another,

in connection with the performance of their duties of employment. So, for example, cycling to and from the station to get to work would qualify. [In this case, 'mainly' means that more than 50% of time using the cycle and safety equipment must involve a qualifying journey."

As regards the Sole trader (self employed): where the recipient of the
Loaned Cycle is an employee of the Sole Trader that would apply. And to save confusion with what I have said before, the employee could purchase the cycles thru the CTW scheme with Salary sacrifice and the attendant tax/NIC saving.
HOWEVER, the Sole Trader (as a business person) cannot sell cycle to himself (as an employee) because he is not an employee, he already owns it: BUT he can 'use' the firm's cycle himself but I feel HMIT would want his 'pound of flesh', or does it mean that HMIT would take a lenient view and apply the "more than 50% of the time" rule and waive any apportionment.
Worth a try.
Peter

 

[ITSPETEINIT]

Hello Frank: to clarify -
I was trying to distinguish in my posting the difference between (1) a Ltd company buying a cycle and allowing an employee to have the use of it AND (2) a Ltd company buying a cycle and making a gift of it to the employee.

In the first case there would be no benefit in kind taxable on the employee, provided he/she used it as defined below:

"The tax exemption only applies when an employee mainly uses the cycle and cyclists' safety equipment for qualifying journeys. A qualifying journey for an employee means a journey, or part of a journey,

* between his or her home and workplace, or
* between one workplace and another,

in connection with the performance of their duties of employment. So, for example, cycling to and from the station to get to work would qualify. In this case, 'mainly' means that more than 50% of time using the cycle and safety equipment must involve a qualifying journey."

The second case raises the question "How is the exemption from tax for the whole capital cost of the cycle and equipment, as a benefit to be dealt with?"
Certainly the Ltd company may not claim capital allowances because it has no continuing financial interest in the asset (the operative word here is 'Gift'). I would make a guess that Revenue and Customs would treat each year of ownership by the individual as an entity on which to make the 'more than 50%' judgement based upon the tables for capital allowances. If in any year the qualifying use fell below 50% the employee might be liable to a charge based upon the respective portions of total mileage run in that tax year. It seems to be a concession by the Revenue to allow exemption if the use in performance of the duties exceeds 50%. They might turn a blind eye if the use in performance fell below 50%. This would continue until the Notional Capital Cost had been used up.

But I think they would wish to test that the arrangement was not being abused to the advantage of the employee or employer.
Any expenditure on the cycle by the employee would be covered by the 'mileage charge' he made on his employer (a bit cheeky after being 'given' the bike). Since the employee owns the cycle he would, subject to his employer's agreement, be able to claim 20 pence/mile for journeys on business. (a nice little earner).
Thus, if this were the case the employee would make a claim in each year based upon the total mileage run/mileage in performance of his duties including getting to work to establish his tax position. If he only goes to the railway station he might find it difficult to establish any credible mileage for business use; especially if he is a keen biker at other times, and as a result find that the mileage charge he made on his employer is taken into account when considering the expenses actually incurred or the proportion that relates to the business mileage.
What could be more straightfoward.

Peter

 

[ITSPETEINIT]

Rubbish!

See the posting above:


In the second case (a gift of a cycle):
The employer company cannot claim capital allowances on the cost.
The employer company can recover input VAT (provided it is registered for VAT purposes).
The employee can charge a mileage allowance (up to 20 p/mile) for 'qualifying journeys'.
It seems that the value of the transfer would attract VAT to be paid by the employee:
Quote:
4) Scope of tax exemption
The exemption removes the tax charge that would otherwise apply to cycles and cyclists' safety equipment loaned to employees provided the following conditions are met
• Ownership of the equipment is not transferred to the employee during the loan period;

It seems likely that the Capital Cost including VAT might be a Benefit in Kind chargeable on the employee because the gift is outside the CTW scheme

I think the mileage charge would determine the extent of the business use, there is nothing further that can be claimed by the employee.

I also think that the Gifting of a cycle to an employee may well be counter productive bearing in mind the advantages of the CTW scheme.
The test of the efficiency of the scheme from the employer company's point of view is 'How generous to their employees they wish to be'.
It is a nice thought that the scheme comes as a financial advantage to the employee as a result of less Tax and NIC paid (but see losses of benefits resulting from lower NIC contributions and lower perceived pay), but the purpose of it is to encourage a greener means of travel in home-to-work and business journeys.

Peter