Cycle to Work tax rules changed

The Cycle to Work scheme allows employers to lend cycles and cycling safety gear to their employees as a tax free benefit, using salary sacrifice arrangements.  The normal practice has been to ‘hire’ bikes for a year and then buy them for ‘a fair market price’ of 5% of the original cost.  However, new guidance from HMRC  changes the rules to avoid this undervaluation.

Cycles currently being used as well as those bought under the scheme in the future will be valued according to a reducing scale over several years.  While this makes the scheme a little less attractive, it is still a valuable benefit because the employee pays tax only on the residual value, and the clarity the new guidance provides may encourage some more companies to take part.