EIM21664 | Particular benefits: exemption for bicycles

Section 244 ITEPA 2003

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.

Electrically assisted pedal cycles (EAPCs) are covered by the exemption.

Where a cycle is provided for employees by their employer via membership with a bicycle share scheme or via a pool bike arrangement, ‘cycle’ should be taken to mean any cycle used under the scheme for the purposes of considering whether the cycle is used mainly for qualifying journeys.

COVID-19 impact on the ‘main use’ test

COVID-19 has changed working practices. Many employees who may have been provided with a cycle or cyclists’ safety equipment have increasingly been working from home. It may not, therefore, be possible for them to meet the ‘mainly for qualifying journeys’ condition necessary for this exemption to apply.

Provided employees have joined a scheme, with a cycle or cyclists’ safety equipment provided to them on or before 20 December 2020, the qualifying journeys condition will not be applied until after 5 April 2022.

Employees who have a cycle or cyclists’ safety equipment provided after 20 December 2020 will need to meet all the conditions for the exemption to apply.

Cyclists’ safety equipment

Cyclists’ safety equipment is not defined in the legislation and a common sense approach should be taken when deciding what falls within this description. Examples of items that count as cyclists’ safety equipment include:

• cycle helmets which conform to European standard EN 1078

• bells, bulb horns and lights including dynamo packs

• child safety seats

• reflective clothing along with white front reflectors and spoke reflectors

Examples of items that do not count as cyclists’ safety equipment include:

• cycle computer

• waterproof clothing that is not reflective clothing

• cycle training

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. However, this does not mean that there needs to be one pooled cycle available for each employee who does not have ongoing use of a cycle.

For example, if an employer had 50 employees who were not eligible to enter into salary sacrifice arrangements but only 20 indicated that they would be interested in having the use of an employer-provided cycle, it would suffice for just a small number of cycles (but certainly more than one) to be available through a pooling arrangement. The smaller the number of pooled cycles, the more important it would be for there to be some form of advance booking system that was aimed at allowing access to pooled cycles for each employee who wished to sometimes make use of one.

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 is 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. However, the Department for Transport guidance confirms that an adult may act as a guarantor if an employee aged under 18 wishes to enter into a cycle salary sacrifice arrangement.

EIM21665 contains more detail about how the exclusion of certain employees from the offer of a cycle affects the availability condition.

EIM21666 contains more detail about what counts as making cycles available to employees.

EIM21667 describes the tax treatment that applies where ownership of a cycle is transferred to an employee.

EIM21668 outlines an exemption for cyclists’ refreshments on ‘cycle to work’ days.