Throughout the hire period, the bikes – and any other equipment – are still the property of the company. HMRC guidance advises that for a program to be tax compliant, a company cannot simply hand over everything to the employees when the hire period ends. They must transfer ownership through certain methods: P11D or Managed Extended Hire.
With P11D, the employer simply gives the bike to the employee at the end of the scheme. They will need to report a taxable benefit in kind (BIK) to HMRC of the value of the bike on the employee's P11D form using the HMRC table.
Employers declare tax payable by an employee based on the residual value of a benefit as defined – in the case of Cycle to Work – by the HMRC valuation matrix. The employee funds the tax payable by a change in their tax coding.
Example – based on standard rate taxpayer with a £450 Letter of Collection (inc. 20% VAT)
- At the end of a 12-month salary sacrifice, HMRC valuation matrix values a £450 LoC at £81 (18% of the original value)
- Employer transfers the ownership of the bike to the employee
- Employer completes form P11D declaring tax payable, by employee, of £16.20 (£81 x 20%)
- HMRC adjusts employees tax code in the following tax year and recovers £1.35 a month from employee
- Employer must factor in Class 1A National Insurance Contributions + VAT that may be due on this transaction
- Resulting cost to employee = £16.20
The total cost of transfer equates to 3.6% of the original value of the equipment selected
- HMRC Cycle to Work guidance document
- HMRC: transfer of bicycle to employee
- Transfer of Ownership: Managed Extended Hire (SmartPay)
Please note, Reward Gateway does not provide tax advice and the above information is publicly available through the relevant HMRC channels.