Buy your bike free of tax

‘Cycle to work’ is the government’s tax-free bicycle buying scheme which has been around since 1999 but, thanks to red tape, only started to be marketed in the bicycle trade in 2004 and only really started to come into its own late in 2005.

Worries about climate change, a planned lack of parking spaces at hospitals and new-build company HQs – and, in London, a fear of terrorist attacks – is making major employers sit up and take notice of ‘Green Transport Plans’.

Car-sharing is one option, but cycling to work is another.

And to encourage cycling to work, the government created a little publicised incentive in 1999 to encourage employers to help their employees acquire tax-free bikes.

Employers can loan bicycles to their staff as a tax-free benefit on the condition that the bicycles are mainly used to get to and from work or for work-related purposes. The employee ‘buys’ the bike at the end of the load period for a nominal sum. With a budget of, say, £400, the employee can now afford a bike, plus accessories, worth £800.

Bike booster

It’s possible for any employer to set up their own ‘Cycle to Work’ scheme.

However, creating such salary sacrifice schemes requires a working knowledge of employment law and the intricacies of the tax system. The paperwork is tricky to complete and there are pitfalls for the unwary such as falling foul of minimum wage requirements and the redrafting of employee contracts.

Each employer will have different challenges which is why salary sacrifice scheme implementation is often out-sourced to third-party companies, such as Booost or Cyclescheme.

‘Cycle to Work’ used to have a tax-break parallel in the PC trade. The Home Computer Initiative (HCI) was a salary sacrifice scheme for getting an employer’s staff hooked up with PCs for home use. It used the same VAT and NIC rules as the bike scheme and was once a booming sector. Major players such as BT, Comet and PC World operated HCI schemes, as did Booost which entered the bike market via Halfords in 2004. In Gordon Brown’s March 2006 budget, the HCI sector was wiped off the map.

The Facilitators

There are nine ‘Cycle to Work’ third-party facilitator schemes, with more likely to follow.

http://www.halfordsb2b.com/bikes4work-schemes.asp

http://www.cyclescheme.co.uk/

http://www.booost.uk.com

http://www.cyclesolutions.co.uk/

http://www.powabyke.com/powabyke/salary

http://www.futuremedia.co.uk/…/brochure2a.htm

http://www.evanscycles.com/ride2work

http://www.bringme.co.uk/…/cycle2work_salary_sacrifice_scheme.html

http://www.club-cycles.com/default.asp

Four of the main schemes are:

Booost

Booost, acquired by Computers For Staff in September 2005, has 600 bike shops on its books.

Booost has now moved away from a paperwork driven scheme and instead operates an online package known as ‘Booost In A Box’, BIB for short. The first stage of BIB can be viewed at https://inabox.booost.uk.com. The second stage of BIB is dedicated to actual schemes underway and cannot be accessed.

Booost claims that BIB schemes can be set up within minutes of an employer’s decision to proceed.

BIB is designed to be used by an employer of any size without the additional work of scheme design or approval.

Recent Booost contract wins include Bedfordshire County Council, Cap Gemini, South Bedfordshire District Council, Oxford University plus many smaller private companies.

Cyclescheme

Cyclescheme has been trading since January 2005.

It was founded by Richard Grigsby and Gary Cooper, owners of Avon Valley Cyclery in Bath. But the founders are keen to stress AVC is seperate to Cyclescheme.

“AVC is a Cyclescheme member,” said Cooper. “But the two businesses are run independently of each other.”

AVC is behind Bath’s railway station. Cyclescheme is run from 16 Argyle Street, close by but not in AVC’s back-office.

Why create Cyclescheme?

Cooper: “I’ve been in this trade for fifteen years and have been a cyclist for 34 years. Cyclescheme generates increased sales for bike shops. It’s something we both believe in, it’s putting something back into the industry.”

Bikes4Work

Halfords has had the most prominent salary sacrifice scheme to date. The 402-store retailer has been at human resources shows and employee benefit conferences. Its Bikes4Work scheme has been put in front of many major, national employers.

Paul Bullet, the Bikes4Work manager at Halfords, said scheme take-up from employers is between 0.2 per cent and ten percent of employees, depending on the type and location of the employer and whether or not the ‘loan’ is administered through a flexible benefits scheme.

Club Cycles

Club Cycles is a division of Vision Business Solutions Ltd. of Northern Ireland. It uses the Halfords Bikes4Work scheme. Employees get ‘Letters of Collection’ to exchange for bikes and accessories in Halfords stores.

TIMELINE: ‘Cycle to Work’

1999: 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 government’s ‘Green Transport Plan’ (IR176), and can generate up to a 50 per cent saving on new bikes and ‘commuting equipment’ such as helmets, panniers and lights. However, the tax exemption scheme – an extension of the ‘Home Computer Initiative’, which allows employees to buy tax-reduced laptops for working at home – suffers from slow take-up because of tax glitches and burdensome paperwork.

November 2004: The Department for Health published a white paper ‘Choosing Health: making healthier choices easier’, which made a commitment for the Department for Transport to work with the cycle industry to produce guidance to promote and implement the bike-buying tax benefit. Red tape remained.?

2003-4: Chris Morris, MD of Luton-based marketing agency Butterfield Morris Bushell Ltd. spotted a gap in the market for a service provision company to market the complex voucher system to employers. He created Booost to take on the admin underpinning the schemes. Initially, Booost was for home computer purchases only. Morris then created parallel scheme for bike purchases. Booost promoted the scheme to Halfords and, via Giant, to the Association of Cycle Traders. Both bite.

February 2004: Halfords’ bike buying scheme was created with the help of Butterfield Morris Bushell Ltd., and branded as Bikes4Work. This is part of Halfords’ business-to-business operation, and run by Paul Bullet. He said the scheme was “one of the biggest things to happen in cycling for many years.” Halfords started promoting its scheme to health trusts, Royal Mail and local authorities.

March 2004: Association of Cycle Traders announced a tie-in with Booost. Giant becomes first bike brand to be part of the ACT/Booost scheme. An ACT/Booost flyer said: “The employee could normally afford to spend £250 on a bike and accessories. The scheme enables them to spend £500. Any additional sales you make for cash to that customer are at your full margin.” Halfords goes it alone, cutting most of its links with Butterfield Morris Bushell Ltd.

April 2004: Trek and Specialized joined the ACT’s Booost scheme.

January 2005: Avon Valley Cyclery principals Gary Cooper and Richard Grigsby incorporated Cyclescheme Ltd. AVC’s Richard Grigsby said: “Cyclescheme operates independently of Avon Valley Cyclery. It’s a facilitator, like Booost, but more flexible.”

April 2005: Booost opened up to all bike brands, not just Giant, Trek and Specialized. Booost revealed it has 500 IBDs on its boooks. This makes the ACT-backed scheme bigger than the Halfords scheme. Booost launched ‘Booost In A Box’, a scheme which enabled companies of any size to use the Booost bike purchase scheme.

April 2005: Booost’s parent company, Butterfield Morris Bushell Ltd. appears in the register of Bristol’s High Court of Justice (Chancery Division) following a winding-up petition served by HM Customs and Excise. The company had until 5th July to settle the VAT dispute. No further notice appears in The London Gazette and the winding-up was not carried out.

May 2005: The Office of Fair Trading throws a spoke in the bike buying wheel. The OFT was concerned about who actually owned the bikes bought by companies on behalf of their employees. It reckoned an agreement for a loan of a cycle under the scheme was a “regulated agreement under the Consumer Credit Act 1974” and that employers must have a consumer credit licence to take part. Only big companies need apply. This right hand of government not knowing what the left hand was doing risked bringing the whole scheme crashing down. Booost, ACT and others lobbied the Department for Transport to get the OFT to see sense.

June 2005: After pressure from the Department for Transport, the Office of Fair Trading did a u-turn. The solution? A catch-all group consumer credit licence was issued which allows employees with packages up to a £1000 to take part without employers having to apply for an individual licence.

June 2005: The Department for Transport re-launched the cycling tax incentive as ‘Cycle to Work’.

September 2005: The Booost brand-name, and all products and trading rights, were acquired by Computers For Staff of Arundel, West Sussex.

October 2005: Computers For Staff MD Richard Chandler mans Booost stand at Cycle 2005 at Excel London.

January 2006: Fisher Outdoor Leisure invests in Cyclescheme Ltd.

NUTS & BOLTS?

According to the Department for Transport, the Cycle to Work scheme works thus: * Your employer signs up for the scheme ?* You then choose a bike from an approved supplier ?* The bike is then bought by your employer who reclaims the VAT ?* You then take delivery of the bike for your exclusive use – provided you use it for qualifying journeys, i.e. commuting to work ?* 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. ?* 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.

This ‘fair market price’ is usually five percent of the original package price. So, after a 18 month ‘loan’ for a bike package costing £1000, the employee takes full ownership for just fifty quid.

The actual discount available to an employee will be based upon their own personal tax circumstances (higher tax payers get fatter discounts) and whether their employer can recover all VAT. Some public sector employers, charities and some others may not be able to recover all the VAT.

The discount also varies depending whether cash purchase or lease finance is used.

In rare cases, where employers decide to directly bear all scheme costs themselves, employees need no budgets at all, with the full cost of their loan bikes then legally treated as ‘non cash tax free benefits’. However, although it is at their discretion, most employers do not actually incur the costs themselves. They achieve this by taking advantage of parallel salary sacrifice tax legislation, allowing them to recover all costs from their employees over a period of time, while their employees still substantially benefit from Income Tax and National Insurance reduction in line with salary sacrifice, plus input VAT recovery where possible.

?FURTHER INFORMATION:

http://www.cyclescheme.co.uk

http://www.booost.uk.com/

http://www.halfordsb2b.com/bikes4work-schemes.asp

http://www.hmrc.gov.uk/…/salary_sacrifice.pdf

http://www.dft.gov.uk (search for ‘Cycle to Work’)