If there’s one tax incentive that has paid dividends to government (in achieving it’s health promotion and green aims), industry (valuable support for small businesses) and individuals (improved fitness and cheaper commuting) then it has to be the Cycle2Work scheme in the UK.
Since it’s inception as a result of the 1999 Finance Act, the Cycle2Work scheme has gradually come to be seen as a great employee benefit and an important part of ‘promoting healthier journeys to work and reducing environmental pollution‘.
Sadly this might not be the case for much longer.
The problem, as is so often the case, comes down to money. Or rather, the lack of it in these straitened financial times. The government is looking for ways to claw back money and passing up on the chance of additional revenue doesn’t seem an option.
This has affected the Cycle2Work scheme by the Inland Revenue issuing guidance on how the scheme is to be administered. The fundamentals remain the same – the employer buys the bike VAT-free and leases the bike to an employee over the course of a year.
The employee pays this cost using untaxed income and at the end of the year pays a final payment which relates to what the bike is nominally worth (called ‘fair market value’), then walks away with the bike. Over the course of a year the employee could save anywhere between 30%-50% or so of the bike’s original value depending on their individual tax status which made it a very popular scheme.
Unfortunately, this looks like being seriously curtailed by the Revenue issuing guidance as to what the fair market value of a year old bike is. They reckon on 25% which is far higher than the 5% or so that many employers charged. In effect it means the savings are significantly less and in some cases nothing at all.
Now employers don’t have to follow this guidance. They can still sell the bike to their employees at a lower cost but in that case the individual becomes liable for tax as a benefit-in-kind. Depending on circumstance the individual could be just as well off taking their cash and looking for a discount on any number of new bikes out there.
So not only do individuals stand to lose out but bike shops do too. As small businesses the Cycle2Work scheme has been great as they’ve not had to give as much of their profits away in the form of discounts since the savings to individuals were already huge. So this change could mark a fundamental shift in bike retailing.
As some of you know I build websites for large corporations to enable their employees to pick and choose their benefits and Cycle2Work has been a very popular choice for many for some time. However, anecdotally, within a couple of days of the Inland Revenue’s guidance one of our clients (a FTSE100 company) currently selecting options for next year has has ditched their Cycle2Work offering. It makes no difference to me what options they offer, but it does suggest that Cycle2Work is under a lot of pressure.
It’s funny how sometimes real life affects our enjoyment of mountain biking isn’t it? And this time it’s not our spouses complaining or a lack of time!! Perhaps we could expect to see a more cut-throat approach to retail pricing as a result? Is that a good thing if that means some of our local bike shops fall by the wayside?
The truth, as has been said before, is out there…