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Legal Updates

Cycle to work scheme "fair market value" clarified by HMRC

17 August 2010 #Employment

HMRC has clarified the tax rules surrounding the Cycle to Work scheme. This should encourage more employers to offer the benefit to their workforce, as companies who strive to go green were previously put off by the uncertainty around the scheme.

If an employer lends or hires cycles or cyclists` safety equipment to employees, the benefit of this is exempt from tax on employment income if the following conditions are satisfied:

  • The cycles or equipment are available generally to all employees of the employer (this does not mean that every employee has to be provided with a bicycle or equipment, just that the offer of cycles or equipment is open to all employees if they wish to take it up); and
  • The employees must use the cycle or equipment mainly for qualifying journeys (mainly commuting to and from work). Other use of the cycle, for instance pleasure use or use by members of the employee`s family will not disqualify the exemption provided that the other use is not the main use of the bicycle.

Bikes are then usually sold to employees at the end of the hire period, usually 12 months, for their "fair market value", which was widely taken as being 5% of the original value. The HMRC website states that the 5% figure is usually significantly less than the actual value of the bike and as such has issued new guidance to assist in fair valuations.

Now, at the end of the hire period, employers can use a simplified valuation table (below) and guidance has been issued by HMRC to calculate the value of the bike.The changes will apply retrospectively to bikes already on loan as well as to bikes purchased via the scheme in the future.


Age of cycle

Acceptable disposal value percentage
Original price of the cycle less than £500

Original price £500+
1 year 18% 25%
18 months 16% 21%
2 years 13% 17%
3 years 8% 12%
4 years 3% 7%
5 years   Negligible 2%
6 years & over Negligible Negligible

Despite the aim of the guidance being to simplify the rules and encourage employers to join, some critics believe that it will in fact have the opposite effect and make the scheme less attractive as tax benefits will be less. HMRC deny this saying: "The Cycle to Work scheme is a very generous tax break and remains so. After consultation with employer representatives we have provided a guide to what constitutes an acceptable price for a bike being sold to an employee to provide a simplified method for establishing the market value of the bike. There has been no change to the rules, if an employer passes a bike to an employee after its use under the cycle-to-work scheme at its full market value there is no tax charge."

Employers will be able to depart from the table if a bike is damaged.  However, it is for them to explain satisfactorily to HMRC why the valuation should be less than that specified.

Employers should also be aware of the recent European Court decision in Astra Zeneca v HMRC in which the Court ruled that Child Care vouchers were subject to output VAT as they constituted a supply of services effected for consideration. Whilst this decision specifically relates to Child Care vouchers, it is thought that other salary sacrifice schemes such as Cycle to Work may also be taxable for the same reasons. For more details please see the Employmentbuddy blog of 4 August 2010.

Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Employment matter please contact Clarkslegal's employment team by email at by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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