HMRC clarifies tax rules on end of cycle-to-work scheme hire period

Her Majesty’s Revenue and Customs (HRMC) has clarified how employers must calculate the fair market value of a bicycle at the end of a cycle-to-work scheme’s hire period.

It is common for cycles provided under salary sacrifice arrangements to be sold or transferred to employees after the end of a period of loan. However, establishing a fair market value for a bicycle can be difficult.

James Robertson, tax-free cycle representative at CycleSurgery, said HMRC was concerned employers were passing bicycles on to staff for as little as £1 or £10. “Now, at the end of the hire period, we need to actually go through a process to value a bike and ascertain a fair market value,” he said.

At the end of the hire period, employers and employees can use the simplified valuation table issued by HMRC. For example, a cycle that costs £500 or less new will be worth 18% of that price one year on, 16% after 18 months, 13% after two years and almost nothing after five years.

A statement from HMRC said: “The cycle-to-work scheme is a very generous tax break and remains so. After consultation with employer representatives we have provided a guide to what constitutes an acceptable price for a bike being sold to an employee to provide a simplified method for establishing the market value of the bike. There has been no chance to the rules, if an employer passes a bike to a employee after its use under the cycle-to-work scheme at its full market, value there is no tax charge.

“The 25% value for a one-year-old bike which cost £500 plus when new is the guide price for the simplified scheme and if employees pay this amount HMRC will accept no benefit arises. Employers can sell the bike to employees at whatever price they like, but if it is lower than 25% at one-year-old then they would need to explain why the value was lower.”

The new estimation applies to schemes already in place, as well as any future cycles purchased through a scheme. 

Read more articles on tax implications of cycle-to-work schemes