On 1 January 2009 a new government scheme to encourage people to cycle to work came into force. Cycling keeps you fit, it’s fast, cheap and reliable – and it’s good for the environment.
The scheme is flexible in its application in that your employer doesn’t have to specifically notify the Revenue Commissioners that you’re availing of the scheme and there are no Government forms to fill out. However, your employer does have to maintain the normal records such as invoices and payment details associated with buying the bike.
Q. I’ve heard about this tax relief for buying a bike to cycle to work, what is it all about?
A. This is a Government initiative that enables your employer to buy a bicycle and bicycle accessories for you, without you being liable for benefit in kind taxation. For a tax payer at the top rate, this equates to a minimum saving of 41% on the cost of a new bike.
Q. What’s the purpose of the scheme?
A. The goal of the scheme is encourage more employees to cycle to and from work. As well as reducing traffic congestion and lowering carbon emissions, more people cycling to work will improve health and fitness levels.
Q. Is it just the bike that is covered by the scheme, or does it include things like locks and lights?
A. In addition to the bike, the scheme covers a range of equipment such as helmets, lights, locks, bells, mirrors, cycle clips, panniers, luggage carriers & straps, pumps, puncture repair kits, cycle tool kits, reflective clothing and reflectors
Q. Is there a limit to the amount I can spend on the bicycle and equipment?
A. Yes, if the total value of the purchases is over €1,000, the difference is subject to benefit in kind taxation.
Q. If I want to participate, is my employer obliged to get involved?
A. No, participation in the scheme is voluntary and it is up to your employer. However, where an employer does agree to implement the scheme, it must be offered to all employees on an equal basis.
Q. Who pays for the bicycle?
A. The bicycle must be bought by your employer. The scheme can then operate with either your employer bearing the full cost of the bicycle, or by way of a salary sacrifice agreement.
Q. How does the salary sacrifice operate?
A. Under a salary sacrifice arrangement, you agree to forego or sacrifice part of your salary every pay period (weekly/fortnightly/monthly as the case may be), in order to cover the cost of the bike and equipment provided by your employer. The amount of salary you sacrifice will be exempt from tax, employee’s PRSI and levies. It will also be exempt from your employer’s PRSI. The salary sacrifice arrangement must be completed within a maximum period of twelve months.
Q. I’m a full time student. Can I avail of the scheme?
A. No, the scheme is operated by employers and is therefore only open to employees
Q. Do I pick out the bicycle and equipment from the shop myself?
A. It is for employers to decide how they will operate the scheme. Some employers may allow their employees to select the bicycle and equipment from the retailer of their choice and the employer can then organise appropriate invoicing and delivery arrangements with the retailer. However, other employers may offer more limited options to employees. An employer could, for example, allow an employee to choose only from the range available from a single retailer.
Q. Can I buy the bicycle and get a refund from my employer?
A. No. Your employer must purchase the bicycle/equipment.
Q. Why can’t I buy more than one bike every five years?
A. The tax relief on the cost of a bicycle and equipment is allowed once in each period of five years. This reflects what would be regarded as a reasonable lifespan for a bike.
Q. Will there be any minimum number of days the bike must be used?
A. There will be no minimum amount of days a bicycle should be used. However, the bicycle must be used mainly for journeys to and from work or between work places
Q. If the employer opts for the ‘salary sacrifice’ model, during the 12 month salary ‘sacrifice sacrifice’ period who actually owns the bike, the employer or the employee ?
A. On the basis of a signed agreement in which they accept the bicycle equipment and a reduced salary in the make up of their remuneration package, the employee owns the bicycle. Ownership will similarly transfer to the employee if the employer purchases the bicycle for the employeee.
Q. Are 'electric bikes' covered under the scheme ?
A. Electric bikes (also known as 'pedelecs') are eligibile for the scheme. These include a bicycles or tricycles which are equipped with an auxiliary electric motor having a maximum continuous rated power of 0.25 kilowatts, of which output is progressively reduced and finally cut off as the vehicle reaches a speed of 25 kilometres per hour, or sooner if the cyclist stops pedalling.
Q. I’ve had a few employees contact me about the scheme. What steps must I take to avail of it?
A. You must decide firstly, whether to participate in the scheme, which would involve offering bicycles and biking equipment to employees. These can be provided to the employee as a tax-exempt benefit of his/her employment or under salary sacrifice arrangements.
Q. How does the tax relief operate for employers?
A. The employer, having decided to participate in the scheme, buys the bicycle and equipment on behalf of the employee without the employee being liable to taxation on the benefit-in-kind.
The employer can also implement the scheme according to a salary sacrifice arrangement. This would involve the employee agreeing to forego or sacrifice part of his or her salary in each pay period in order to cover the cost of the bicycle and equipment. Under the scheme, any salary sacrifice arrangement must be completed within a maximum period of twelve months.
The employer saves on employer’s PRSI on the value of the benefit (up to €1,000) provided to the employee. The employee saves on income tax, employee’s PRSI and levies on the value of the benefit received from the employer.
Q. What is the difference for the employee and employer between operating the salary sacrifice model and the benefit-in-kind exemption model?
A. Both models, i.e. both ways of implementing the scheme (benefit supplied by employer or salary sacrifice), involve a benefit-in-kind exemption. However, where there is no salary sacrifice, the employer bears the entire cost.
Q. Is there a difference in monies saved or time over which the bike is paid for?
A. Whether the scheme is implemented in a particular employment by way of a BIK-exempt benefit from the employer to the employee, or by way of a salary sacrifice agreement between employer and employee, the amount of tax, PRSI and levies saved by the employer and employee is exactly the same in both cases. However, where salary sacrifice agreements are entered into between the employer and the employee, the arrangement must last for a maximum period of twelve months.
Q. If I am getting the bicycles and equipment delivered to my workplace, is the cost of delivery covered by the tax relief on the scheme?
A. Yes, provided the maximum value of the benefit, including delivery charges, does not exceed €1,000. The relief is limited to €1,000 - where the cost exceeds this amount, a BIK charge will apply to the balance.
Q. How will the exemption operate? Do I have to notify Revenue that I am providing bicycles for employees? What kind of documentation is required?
A. There will be no notification process involved but the purchase of bicycles and associated equipment by employers for employees will be subject to the normal Revenue audit procedure with the normal obligations on employers to maintain records (e.g. delivery dockets, invoices, payments details, salary sacrifice agreements between employer and employee, signed statements from employees that the bicycle/bicycle safety equipment is for own use and will be used for travelling to and from work).
Q. Am I liable to pay VAT on the bicycle / equipment purchased for employees? Can I claim an input credit in respect of the VAT?
A. Yes, VAT is payable. The employer will not be able to claim an input credit in respect of the VAT payable as the bicycles will not be used for the purposes of taxable supplies.
Q. As an employer, if I spend less that €1,000 in one year on providing a bike for an employee, can the employee claim exemption from the benefit-in-kind charge for the difference between €1,000 and the amount spent on the bicycle, within the 5- year period?
A. No. An employee can only avail of the exemption once in every 5 years. It does not matter that he or she may have been exempted from a benefit-in-kind charge for an amount less than €1,000. The exemption is available once in every 5 year period.
Q. Can a bicycle be bought anywhere, e.g. online from abroad, or will it have to be bought in Ireland or from a pre-approved selection of shops?
A. There are no limits as to where the bicycle should be purchased by the employer.
Q. How do employers obtain the monetary tax relief ?
A. Where an employer implements the scheme, they will not account for employer PRSI on the amount of the benefit provided. For example, if a bicycle to the value of €500 is provided to the employee, there would normally be a liability on the employer to submit 10.75% of this value, i.e. €53.75, to the Revenue Commissioners as part of their returns. The Cycle to Work scheme now exempts the benefit from employer PRSI and the €53.75 will not have to be returned.