EIM21664 - Particular benefits: exemption for bicycles and cyclists' meals or refreshments

Section 244 ITEPA 2003, S.I.2002 No. 205 and S.I.2003 No. 1434

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. 'Qualifying journeys' means the same as for the works bus exemption (see EIM21850) . 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.

Employees are not expected to keep detailed records of time spent cycling or miles travelled for the purpose of this 'main use' test. Accept that the test is satisfied unless there is clear evidence to suggest that less than half of the use of the cycle or equipment is on qualifying journeys. If it is clear that there is substantial use of the cycle for qualifying journeys, do not make special enquiries about the extent of any other use.

The exemption also covers the provision of a voucher for hiring bicycles and equipment.

Interaction of exemption with salary sacrifice arrangements

Employers sometimes choose to provide the benefit of a loaned cycle in conjunction with salary sacrifice arrangements. (For more on salary sacrifice, see EIM42750 onwards). Whilst this in itself has no direct relevance to the application of the exemption in section 244 ITEPA 2003, the way in which the benefit is offered in a salary sacrifice arrangement may raise questions about whether or not the offer of a loaned bicycle is available to all employees. In particular, if an employer excludes some employees from the salary sacrifice arrangements, the exemption will only apply if the employer still extends availability of loaned cycles to those employees that are barred from entering into the salary sacrifice arrangements.

Although cycles must be offered to all employees, there is no requirement for them to be offered on exactly the same terms and conditions. This means that the availability condition can still be satisfied if employees who enter into salary sacrifice arrangements are offered the use of more expensive cycles than those offered to employees outside salary sacrifice arrangements. In addition, there is no requirement that all employees should have access to a cycle that is solely for their personal use. So a pool of cycles for loan to other employees can be taken into account. But if cycles are provided by way of a pool, they need to be provided in sufficient numbers to ensure that there is genuine availability for those employees who wish to make use of the pool of cycles, in other words the employees must be able to access the cycles with a reasonable degree of frequency.

When an employer offers cycles through a salary sacrifice arrangement, it may need to enter into a regulated hire agreement with its employees. This is because of Consumer Credit legislation that falls outside HMRC’s area of responsibility. The need for regulated hire agreements in a salary sacrifice framework s highlighted in guidance about “Cycle to Work” arrangements that is published by the Department for Transport. Some employers were concerned that this meant that they were unable to include employees aged under 18 in cycle salary sacrifice arrangements. But the Department for Transport guidance was updated in October 2009 and now confirms that an adult may act as a guarantor if an employee aged under 18 wishes to enter into a cycle salary sacrifice arrangement.

Transfer of ownership of cycle

If ownership of the cycle is transferred to an employee after a period of use as a benefit, the cost of the benefit is the market value at the date of transfer. This is different from the special rule for working out the taxable amount under the benefits code when assets are transferred after a period of use as a benefit (EIM21650).

In some salary sacrifice arrangements employees are offered the opportunity to buy the cycle after the end of the loan/ salary sacrifice period. Where this happens, market value must be ascertained in the normal way (EIM21650). If a cycle is transferred to an employee at a nominal value (say 5 to 10% of the original retail price), then if the market value is higher, the employee will be taxable on the difference. The exemption from tax and NICs for loaned or hired cycles only applies where there is no transfer of the property in the cycle or equipment in question. This means that the exemption will cease to apply if ownership is transferred to an employee. Similarly, the exemption will not apply if any agreement builds in from the outset an automatic transfer of ownership to the employee at the end of the hire period.

Free meals and refreshments provided to cyclists on "cycle to work" days

Some employers designate a few days each year as "cycle to work" days. In order to encourage employees to participate the employer may provide a free meal or refreshments. Under general principles such meals are a taxable benefit in kind but regulations exempt them from tax, as long as they are provided on designated "cycle to work" days.