As summer approaches now is a great time to cycle to work and the outgoing Chancellor left a nice little tax break in the legislation for those looking to buy a new bike in the form of the Cycle to Work Scheme.
It is being marketed towards large employers as a salary sacrifice scheme whereby they give their employees a voucher to buy a new bike and then loan it to their employees in return for sacrificing part of their salary.
This effectively reduces the employees tax and NI contributions each month and they get to spread the cost of the new bike throughout the year via their wages. The advantage to the employer is that their NIC bill also goes down, they get immediate tax relief on the cost of the bike and also get to reclaim the VAT.
This is all well and good but I took a closer look at the legislation to see if this could also apply to the owners of small businesses and, luckily, it does.
If you are a director of your own company then you too qualify. The company can buy your bike and let you use it. Any VAT can be reclaimed and the cost of the bike will qualify for immediate relief under the capital allowances rules.
There are, however, a few rules to bear in mind:
- At least 50% of the bike’s usage must be commuting or business related travel;
- The bike cannot cost more than £1,000;
- The rules only apply to employers (not to the self-employed);
- If your company stops trading, or you wish to sell the bike, then you may need to pay back some of the tax and VAT relief obtained.
Full details of the scheme can be found here.
