As contractor accountants, we have the best interests of contractors at heart, so here’s an idea you might like! With summer approaching, why not take advantage of the Cycle to Work Scheme and purchase a bicycle via your company. Save money on fuel bills and improve your fitness, all at the same time.
Why Cycle to work?
Under the cycle to work scheme, you are able to claim a bicycle and any safety equipment as a business expense. These are company assets and lent to the individual by the company. There are certain requirements to meet to qualify for the scheme:
- The cycle is used mainly for work journeys (mainly in this case being 50% or more for business purposes)
- If you do not use the cycle mainly for qualifying journeys you may lose the benefit of the tax exemption and you would be liable to pay tax on the benefit
- If at some point in the future you wish to personally own the bike or you need to close down your company, you will have to purchase the bike from the company. This would have to be the market value of the bike at that time, if you were to receive the asset for free, it would be regarded as a taxable benefit.
- Please keep a copy of your receipt for expense purposes.
There is a limit of £1,000.00 and anything above that price would need to be met by you. Under the scheme the company owns the cycle and you are paying the company for ownership of the cycle under a salary sacrifice scheme (the price of the cycle (excluding VAT)) is deducted from your salary by equal installments over 12 or 18 months.
You save tax and national insurance on the instalments as you are taxed and pay National Insurance on your income after the monthly instalment has been deducted from your salary). At the end of the 12 / 18 month period you will need to pay a lump sum of 5% of the market value of the cycle (the figure is 25% of the market value for cycles that cost more than £500.00) for the cycle ownership to be transferred to you.
Company buys the bicycle directly
If you were to use this method there would be no limit on the value of the bicycle you could buy. But this would be classed as an asset of the company and usage of this asset could be classed as a benefit in kind if used for substantially more than business purposes. You would not be making any payments towards the cost of the cycle and if you wanted to buy the cycle from the company you would have to pay the market value of the cycle (second hand value).
Legal position of the employer and adequate insurance cover
If an employee is found negligent whilst using a bike to and from work it would be unlikely that the employer would be to blame if the employee caused an accident. If however the employee was using the bicycle for work related business and due to negligence caused an accident and injury to a third party the employer would in all probability be liable.
However until any of the above goes before a court of law it is impossible to be 100% correct as to what the legal position would be. Equally if the bike failed and the employee was injured as a result of a defect while on business would the employer be liable or would it amount to a claim being made by the employee against the manufacturer of the bicycle? Again it is not possible to be 100% sure.
Contact us if you would like to learn more!
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If you want some more detail about how you could use the Cycle To Work Scheme to your advantage, fill in the form below and we will get in touch with you!
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