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Further HMRC advice on cycle to work salary sacrifice schemes
15 Dec 2009
Following on from the October 2009, Department for Transport (DFT) guidance on Cycle to Work Schemes, HM Revenue & Customs (HMRC) has issued information concerning the efficacy of salary sacrifice schemes used to loan cycles and cyclists’ equipment to employees.
All employees
Salary sacrifice schemes are used to loan cycles to employees so that both the employee and employer obtain the income tax and Class 1/1A NICs advantages of such a scheme. However, there is a snag: unless cycle loans are made available to all employees in general the exemption does not apply.
Employees under the age of 18 cannot enter into personal cycle loan agreements with their employer whether or not the agreement is by way of salary sacrifice; while employees being paid at or near the National Minimum Wage level cannot sacrifice an amount of wages that would take their pay below the minimum wage.
Excluding employees
Therefore, what is the situation if an employer operates a Cycle to Work scheme for only some employees because certain employees must be excluded?
Where, for example, the only reason certain employees are excluded from a salary sacrifice scheme is to do with their age or level of earnings then HMRC are prepared to accept the following:
1) For employees that had entered into Cycle to Work salary sacrifice arrangements by 18 December 2009, the exemption will be treated as continuing to apply until the end of each such employee’s current Cycle to Work agreement.
2) Any renewal of the current Cycle to Work agreement for another cycle will be treated as a new arrangement and will only be covered by the exemption if all conditions (including the availability condition) are fully satisfied.
3) For any employee that had not entered into Cycle to Work salary sacrifice arrangements by 18 December 2009, the exemption will only apply if all conditions (including the availability condition) are fully satisfied.
Bearing in mind the above, if at any time the exemption conditions are not met then, regardless of the employee sacrificing some of their wages to be loaned a cycle, the benefit must be returned on forms P11D and the employer pay the Class 1A NICs.
The Income Tax (Earnings and Pensions) Act 2003, s.244, gives an exemption where:
· the cycles or cyclists' equipment are available generally to all employees of the employer (this does not mean that every employee has to be provided with a cycle or equipment, just that the offer of cycles or equipment is open to all employees if they wish to take it up);
· the employee uses the cycle or equipment mainly for “qualifying journeys” (travel between home and work and/or between workplaces); and
· title to the cycle or equipment does not pass to the employee.
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