On your bike
01 October 2019
This article was featured in the October 2019 issue of the magazine.
Diana Bruce, MCIPPDip, CIPP technical material author, races through on e-bikes
In our somewhat austere political society, we tend to know when the government is steering us, both as employers and employees, in a certain direction by the income tax and National Insurance contributions (NICs) breaks we are provided with. Initiatives from government drive forward change, a prime example being cycle-to-work schemes; and recently refreshed guidance has seen a push to encourage the use of e-bikes.
Finance Act 1999 introduced an annual tax exemption which allows employers to loan cycles and cyclists’ safety equipment to employees as a tax-free benefit. Primarily this has been accessed through salary sacrifice but loan and pooled cycle schemes are also used.
Since introduction of the tax exemption employers have been encouraged to get their workforces cycling. More than 40,000 employers across the country are involved, and more than 1.6 million commuters encouraged to cycle to work.
The government want to make sure that cycle-to-work schemes continue to attract new cyclists and are as inclusive as possible so that all people travelling to work have the opportunity to realise the benefits that cycling affords. More recently this has resulted in a greater use of e-bikes, or electrically assisted pedal cycles (http://bit.ly/2KRR2Cx) to give them their formal name. E-bikes have an integrated motor that helps the cyclist pedal, allowing them to reach speeds of up to 15.5 mph. They are seen as a game changer for their potential to make it easier for older, less able or less fit people to make cycling a part of their commute.
Worth noting is that there are different rules in Northern Ireland for e-bikes (http://bit.ly/2KPufHq).
...salary sacrifice but loan and pooled cycle schemes are also used
In June this year during Bike Week, ‘refreshed’ guidance (http://bit.ly/2NgPB3s) was published by the Department for Transport (the first update since 2011), hailing a “new era of green commutes”, making it easier for employers to provide cycles and equipment, including e-bikes, worth over £1,000. The guidance primarily concerns schemes using the salary sacrifice process and it sets out how such schemes typically operate, and what is needed to ensure that the tax and NICs benefits can apply. It also sets out whether the associated hire agreement may be regulated by the Financial Conduct Authority (FCA) or exempt.
Previously, many employers that have been the owners of bikes provided under cycle-to-work schemes, may have limited the total value to £1,000 per employee to avoid the red tape requirement of compliance with the FCA for any agreement above this cost. As e-bikes are generally more expensive they may not always have been considered.
The refreshed guidance makes it clear that where the employer uses a FCA-authorised third-party provider, then the limit does not apply – thereby increasing the options for providing employees with a higher cost bike.
Increasing the use of e-bikes is predicted to help tackle congestion, speed up commutes, make journeys greener and cut travel costs. A survey of 2,000 commuters (commissioned by Evans Cycles) estimated that by switching from car, bus, tube or train to e-bikes, commuters could save an average of £7,791 over five years.
Employers can set up and run their own salary sacrifice scheme, or there are cycle-to-work scheme providers who can run the schemes on behalf of employers.
Where a cycle and/or safety equipment is made available to an employee under a salary sacrifice arrangement there will be a consumer hire agreement in place which will typically be between the employee and the employer, or it could be with a third party.
If the scheme meets the relevant criteria it can benefit from the tax exemption in the Income Tax (Earnings and Pensions) Act 2003. Since a portion of the salary is foregone, the employee pays less tax and NICs, and the employer is able to save on employer NICs at 13.8% and apprenticeship levy at 0.5% (where applicable) on the amount sacrificed.
There are also other ways in which the employer can encourage cycling to work:
Loan schemes – One alternative option is to provide a loan to an employee to purchase a cycle, similar to schemes offered to employees for purchasing rail season tickets. Loan schemes, including on an interest-free basis, may be subject to regulation by the FCA.
Pooled schemes – Another option is the workplace pool cycle model, a tried and tested way for supporting staff in their commuting and for inter-site and business trip travel which is generally not well served by public transport. At its simplest, you can purchase a suitable fleet of cycles and make them available to employees either on a one-to-one or a pool basis.
Through the Cycling and walking investment strategy (http://bit.ly/2m03dEF) which outlines its ambition to make cycling and walking a natural choice for shorter journeys, or as part of longer journeys by 2040 (in England), the government plans to invest approximately £2 billion on ‘active travel’ (like walking or cycling) over the course of this Parliament. This would see a doubling of the spending per head when compared to the last Spending Review period.
Also announced in June this year, is that an extra 2,300 cycle spaces are to be built at 48 stations across England, enabling commuters to cycle directly to the station and lock up their bike securely. The Cycle Rail programme has already tripled the number of cycle parking spaces at more than 500 stations, bringing the total to over 80,000.
The Cycling and walking investment strategy also highlights that physical activity helps to prevent and manage more than twenty chronic health conditions and is also linked to overall health benefits which can result in increased productivity and reduced absenteeism at work.
A rise in workers using bikes to commute brings not only financial benefits from tax and NICs exemptions but also benefits to the workplace, on many levels.
...increased productivity and reduced absenteeism at work
If you are considering setting up a cycle-to-work scheme, then there are some areas to bear in mind:
The employee must not sacrifice salary to a level below the minimum wage (you can offer the employee a lower value package and/or a longer than usual hire period or hire a cycle to the employee without a salary sacrifice arrangement).
The scheme should generally be available to all colleagues.
If the value of goods hired by the employer to the employee exceeds £1,000, it is acceptable provided the requisite FCA authorisation is obtained.
Cycle-to-work schemes do not need approval from HM Revenue & Customs (HMRC). The tax authority does however provide general information (http://bit.ly/2KKdOgV) for employers regarding salary sacrifice.
There are of course various other forms of travel for workers which benefit from tax and NICs exemptions. For example, as an employer you will be exempt from reporting or paying anything if the cost is for:
a works bus service
an employee with a disability (in certain circumstances)
a taxi home after occasional and irregular late-night working
a taxi home if a car-sharing system is temporarily unavailable
travelling to work because public transport has been disrupted by industrial action.
HMRC’s 490 Employee travel (http://bit.ly/2TOS2v9) is the employer’s ‘must have to hand’ guide to the tax and NICs treatment of business travel by employees.