Changes in working patterns resulting from the coronavirus crisis have led Her Majesty’s Customs & Excise (HMRC) to temporarily relax one of the key rules of the scheme, which allows employees to effectively buy a bike ‘tax-free’ through salary sacrifice.
Under the terms of the scheme, a bike and accessories supplied to an employee whose workplace is signed up to Cycle to Work must be used mainly for what are termed “qualifying journeys” – that is, commuting, or using the bike for work-related purposes, for example site or client visits.
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With official advice since last March being for people to work from home wherever possible, many people who have benefited from the scheme and have not yet come to the end of the salary-sacrifice term will unwittingly be breaching that condition.
As a result, Financial Secretary to the Treasury, Jesse Norman MP – a former Cycling Minister at the Department for Transport – announced shortly before Christmas that a temporary easement was being introduced that removed the qualifying journey requirement, but only for people who had obtained bikes through the scheme up to and including 20 December last year.
The temporary easement means that people benefiting from the scheme, which saw a big jump in uptake last year, will not be at a disadvantage, financially, due to changes in working practices that in most cases will be out of their control.
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In a statement to the House of Commons on 17 December, Mr Norman said:
The tax exemption for the employer provision of cycles and cyclist’s safety equipment was introduced to support employers in promoting healthier journeys to work and to encourage green commuting. Many employers offer this in the form of Cycle to Work schemes.
One of the conditions of the exemption is that the cycling equipment provided should be used mainly for qualifying journeys (to or from work or in the course of work).
The Government’s COVID-19 restrictions have required many employees to work from home where possible. Therefore, many existing users of the scheme are not travelling to work and may be unable to meet the condition for qualifying journeys. Under the current application of the rules, these individuals would become liable to an income tax Benefit in Kind charge.
However, the Government will introduce a time limited easement to disapply the condition which states that cycles must be used mainly for qualifying journeys. The easement will apply to existing users and will allow those individuals to continue to benefit from the tax exemption without needing to meet the qualifying journeys condition.
The easement will be available to employees who have joined a scheme and have been provided with a cycle or cycling equipment on or before 20 December 2020. The easement will be in place until 5 April 2022, after which the normal rules of the exemption will apply.
Therefore, employees who have joined a scheme and have been provided with a cycle or cycling equipment on or before 20 December 2020, will be permitted to an easement, and will not have to meet the qualifying journeys condition until 5 April 2022. Employees who join a scheme from 21 December 2020 will need to meet all the normal conditions of the exemption.
It’s an open secret within the cycle trade, however, that many of the bikes bought through Cycle to Work will never have been ridden to and from work, being kept instead for rides at the weekend or in the evenings.
Planet X, for example, which ceased accepting vouchers under the scheme in 2018, says with an implied nod and a wink on its website that in the two decades since the scheme was introduced in 1999: “We’ve supplied a huge quantity of high quality carbon bikes, time trial bikes, full suspension off-road bikes, track bikes, and other bikes, which we’re sure have given their owners great fun on their daily ride to work.”
Up until now, therefore, it’s probably fair to say that the ‘qualifying journey’ aspect of Cycle to Work was something that if it was mentioned at all when an employee applied for a bike through the scheme only needed a cursory response, and there would be no follow-up checks that it was indeed being used primarily for those purposes.
The constituent nations of the UK are of course now back under strict lockdown regulations, with many businesses closed and furloughing staff, or allowing employees to work remotely, and it is clear that it will be many months at least until we see a return to anything resembling life as it was before the COVID-19 pandemic struck.
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So, could it be that HMRC – which among other things, would be aware of who is applying for tax benefits available to people working from home during the crisis – may start taking a closer look at those obtaining a bike through the Cycle to Work scheme from 21 December, to ensure that they are actually using it primarily for the purposes allowed?
We have approached the Cycle to Work Alliance, which represents the major providers of services under the scheme, for a comment.