Transport Minister Derek Twigg confirmed that employers are able to recover VAT paid on cycles purchased for commuting. He also said that the Cycle to Work scheme had been simplified by the introduction of a group credit licence (required under the Consumer Credit Act 1974), which allows packages to be purchased up to a value of £1000 (inc. VAT).
Cycles provided under this scheme are selected by participating employees, who pay the VAT-free price by salary deductions over, typically, an 18-month period.
The employees tax and national insurance contributions are reduced accordingly. Bikes are available from approved suppliers and provided employees use the cycles for cycling to work they may also be used by employees for leisure.
APPCG Secretary Lord Berkeley said: An administrative burden has been lifted from employers who want to actively encourage cycling to work. We look forward to the simplified Cycle to Work scheme being actively promoted to all employers, including local authorities and NHS trusts facing problems caused by car parking limitations and increased rush hour traffic congestion.
Workplace travel plans frequently reveal that many employees drive just a few miles to work and rarely car-share. Most of them could easily cycle five miles in less than 30 minutes, saving money while improving their health and fitness.
DfT Summary of Cycle to Work Scheme
To promote healthier journeys to work and reduce environmental pollution, the 1999 Finance Act introduced an annual tax exemption, which allows employers to loan cycles and cyclists safety equipment to employees as a tax-free benefit. The exemption was one of a series of measures introduced under the Governments Green Transport Plan.
To date, the take up has been low although in the final six months of 2004, a number of schemes were implemented. However, many employers are put off by the complexity of the scheme. In November 2004, the Department for Health published their white paper Choosing Health: making healthier choices easier, which makes a commitment for the DfT to work with the cycle industry to produce guidance to promote and implement this tax benefit. The DfT has therefore produced implementation guidance in co-operation with DTI, OFT, HMRC, and the cycle industry. The DfT will also be producing a summary leaflet with case studies later this summer to accompany the implementation guidance which will include and an easy to follow step by step guide of how the scheme works and how it can benefit both employers and employees. The Office of Fair Trading (OFT) take the view that an agreement for a loan of a cycle under this scheme is a regulated agreement under the Consumer Credit Act 1974 and that employers must have a consumer credit licence to take part. This had been a major inhibitor to take up. The DfT, therefore, negotiated with the OFT to issue in a group consumer credit licence which allows employees with packages up to a £1000 to take part without employers having to apply for an individual licence. OFT hold the licence which was issued on 2 June. The scheme works as follows: o Your employer signs up for the scheme
o You then choose a bike from an approved supplier
o The bike is then bought by your employer who reclaims the VAT
o You then take delivery of the bike for your exclusive use - provided you use it for qualifying journeys, i.e. commuting to work
o The VAT free price is then deducted from your salary by equal instalments over a period of time (typically 18 months), but as you don't pay tax or NI on the income you forego, this will give you further savings.
o After the period of salary sacrifice, the employer may give you the option to purchase the bike at a 'fair market price', though depends on the period you have had the cycle loaned to you.