HMRC exempts the benefits from tax salary sacrifice arrangements like cycle loans where an employer lends or hires cycles or its safety equipment to employees provided the following conditions being satisfied:
· the cycles or equipments are generally available to all employees of the employer whether or not the employees take it up, and
· the employees use the cycle or equipment mainly for qualifying journeys.
It is common under this type of salary sacrifice arrangements for the employer or the lender to sell or transfer the cycle or equipment to the employees at the end of the loan period. HMRC has clarified that if the agreement to loan the cycle builds in a condition at the outset to automatically transfer the ownership of the cycle to the employee at the end of a loan period then the exemption will not apply. When a cycle is transferred to an employee after a period of use as a benefit there is a risk of the transfer being held taxable either as earnings or as a benefit. The key to determining whether the transfer is taxable or not depends on whether the payment made for the cycle is equal to or more than its market value. If the employee pays less than market value, the difference will be taxable as employment income.
Establishing market value of second hand cycles can be difficult, as the amount that an employee can realise for a cycle in the course of a private sale may be rather higher than a cycle retailer would be willing to pay. In order to ease the administration of valuing cycles sold to employees HMRC has come out with a valuation table. Transfers that are in agreement with the values in the valuation tables will be acceptable to HMRC:
| Age of cycle | Acceptable disposal value percentage | |
|---|---|---|
| Original price < £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 |
