The Cycle to Work tax relief should be retained, according to the Office of Tax Simplification.
The scheme, which has seen more than 400,000 people purchase a bicycle tax-free through their employer, is under threat after Her Majesty’s Revenue and Customs called for a review.
The independent Office of Tax Simplification, based at the Treasury, was created to provide independent advice on simplifying the UK tax system and has presented its findings to the Chancellor of the Exchequer, George Osborne, with a formal response expected as part of the 2011 Budget on March 23.
Cycle to Work effectively allows employees to ‘hire’ a bike from their employers and pay back the cost through monthly instalments taken from their salary before tax, with the bike then sold to the employee at ‘fair market value’.
That was widely taken to be five per cent of the original shop value, meaning a £1,000 bike would be bought for £50 at the end of the hire period, normally 12 to 18 months.
But HMRC’s new guidance recommended that a bike costing more than £500 originally will be worth 25 per cent of that price after a year, 21 per cent after 18 months, 17 per cent after two years and scaling down to two per cent after five years – with the higher sale value thus reducing the attractiveness of the scheme.
Cycle to Work Alliance representative and Halford head of business services Keith Scott said: “We are delighted the Office of Tax Simplification has recognised the important work the cycle to work scheme plays in supporting the Government’s health, environment and sustainable transport policy.”