Employee Benefits

The Cycling Minister, Michael Ellis, has announced a number of changes to the Cycle to Work scheme in an announcement that was timed to coincide with Bike week. Bike week is an annual celebration to showcase cycling across the UK and runs from 8 – 16 June.

The Cycle to Work scheme was introduced almost 20 years ago to help promote the use of healthy ways to commute to work using an environmentally friendly and more active mode of transport. This can also speed up commuting time and cut travel costs for many employees.

The changes to the scheme will encourage the use of electronic bikes known as e-bikes. E-bikes have an integrated motor that helps a cyclist pedal, allowing them to reach speeds of up to 15.5 mph in the UK. The use of these bikes widens the appeal of biking to a wider demographic including those that are older or less fit and encourages a new way to commute to work. The use of e-bikes is increasingly popular and 70,000 were sold in the UK last year.

New government guidance will also make it easier for employers to provide cycles and equipment including e-bikes worth over £1,000 by making it clear that FCA authorised third party providers are able to run the scheme.

Planning note

Employers of all sizes across the public, private and voluntary sectors are eligible to take part in the scheme to provide (technically loan) bicycles and cyclists’ safety equipment to employees as a tax-free benefit. Where the scheme conditions are satisfied, employees can benefit from a tax and National Insurance Contributions (NICs) reduction of between 32% and 42% through a salary sacrifice scheme. In addition, there is no employer liability to NICs.

Employees can often reimburse their employers for benefits provided in order to lessen their taxable benefits and thereby reduce or avoid a tax charge. This is referred to in the legislation as ‘making good’ and most often involves the employee making a cash payment to their employer. The payment has the effect of reducing the taxable value of the benefit in kind, often to zero. This reimbursement process reduces the amount of the employee’s taxable earnings, and indirectly, the amount of your employer's National Insurance payments.

Any employees using this option, need to be aware of the 6 July deadline for making the reimbursement. For example, if the benefit in kind was received during the 2018-19 tax year, the deadline for making a reimbursement is normally the 6 July 2019. There are exceptions to this such as paying back private costs made on a company credit card. In these cases, the employee has to 'make good' the benefit before 1 June following the end of the tax year in which the benefit was provided.

Why keeping to these deadlines is important?

Employees can still make payments after 6 July 2019, but by doing so will not reduce the taxable value of the benefit in kind. This means the benefit will still be taxable and liable for National Insurance contributions and cannot be adjusted by the employer.

How much maternity leave can you take?

If you work as an employee and become pregnant you are eligible to take up to 52 weeks of statutory maternity leave. This is made up of 26 weeks of ordinary maternity leave plus an extra 26 weeks of additional maternity leave. If you give the correct notice period to your employer this means you are entitled to take a full year's leave.

Statutory maternity leave is available to all employees and it doesn’t matter how many hours you work or how long you have worked for your employer.

When are you entitled to Statutory Maternity Pay? 

There are additional criteria that must be fulfilled if you want to claim statutory maternity pay (SMP). SMP is a weekly payment from your employer made over a 39-week period.

SMP is payable at

• 90% of the employee’s average weekly earnings (AWE) for the first 6 weeks with no upper limit;
• £148.68 (for 2019-20) or 90% of their AWE (whichever is lower) for the remaining 33 weeks.

The SMP is available to employees if:

• They are on the payroll in the 'qualifying week' – the 15th week before the expected week of childbirth.
• Provide the correct notice period to their employer.
• Provide proof they are pregnant.
• They have been working continuously for the same employer for at least 26 weeks up to any day in the qualifying week.
• They earned at least £118 a week (gross) in the 'relevant period'. The relevant period is usually the 8-week period preceding the 15th week before the baby is due, known as the qualifying week.

The maternity allowance is a financial benefit for pregnant women who are self-employed, who are working but do not qualify for the SMP or who have recently stopped working. Your employer is free to offer you additional benefits which includes higher maternity payments, however this is at their discretion and not legally required.

HMRC’s Employment Income Manual is clear that there are special rules when an employee receives goods or services by reason of their employment, that the employee does not pay for in full. The first step should always be to consider whether a voucher or credit-token was used to obtain them.

Any non-cash vouchers, for example gift vouchers or credit tokens from shops, or electronic cards (equivalent to vouchers) given to a director or employee that can only be exchanged for goods or services may be chargeable as benefits.

The chargeable amount is generally the cost to the employer of providing the voucher or card less any amount made good by the director or employee. Non-cash vouchers also include items such as book tokens or tickets, that cannot be exchanged for cash.

The value of the vouchers and credit tokens should be added to the director’s or employee’s gross pay and Class 1 NICs operated unless a specific exemption applies.

The underlying legislation in Part 3 Chapter 4 ITEPA 2003:

• covers all employees (including for 2015/16 and earlier, those in lower paid employment)
• applies to vouchers and credit-tokens provided by third parties as well as those provided by employers
• charges a benefit in respect of vouchers or credit-tokens provided for, or received by, a relation of the employee.

As a general rule, there is no tax relief for ordinary commuting. The term ‘ordinary commuting’ is defined to mean travel between a permanent workplace and home, or any other place that is not a workplace. Case law has also confirmed that travel between home and a permanent workplace is ordinary commuting even where home is also a workplace.

In practical terms this means that there is no deduction for the cost of travel between an employee’s permanent workplace and:

• an employee’s home (with some limited exceptions), or


• any other place the employee visits for reasons that are not related to the employment, or


• any place at which the employee performs the duties of another employment.

Any journey between an employee’s permanent workplace and home or any other place at which the employee’s attendance is not necessary for the duties of that employment, is ordinary commuting for which no deduction is due.

The rules are different for temporary workplaces where the expense is allowable. A workplace is defined as a temporary workplace if an employee goes there only to perform a task of limited duration or for a temporary purpose.

There are specific exemptions from tax for works bus services and subsidies paid to public bus services as well as for the provision by an employer of bicycles, and cycling equipment in order to encourage environmentally friendly transport between home and work.

Where an employee with a company car is provided with fuel for their own private use by their employers, the default position is that the employee is required to pay the car fuel benefit charge. The charge is determined by reference to the CO2 rating of the car, applied to a fixed amount, currently £23,400. For example, a vehicle with a CO2 rating of 150g/km would create a taxable benefit of £7,254. The car fuel benefit charge will increase to £24,100 for the 2019-20 tax year.

Crunch the numbers – which is lower, tax on the benefit or repay private fuel used?

The car fuel benefit charge is not applicable when the employee pays for all their private fuel, this includes commuting to and from work. Employees should keep a log of private mileage and can then use the published advisory fuel rates to repay the cost of fuel used for private travel back to their employer. In this case, HMRC will accept that there is no car fuel benefit charge and the employee will save the Income Tax charge on the private car fuel benefit. It will usually be much cheaper to repay your employer for private fuel rather than to pay the Income Tax charge especially if private mileage is relatively low.

The advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. However, the use of the advisory fuel rates is not binding if the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile. There is also a lower advisory rate if the company car is fully electric.

The list of company benefits that can be provided tax-free to employees is quite short. However, some of the benefits that can be provided include the following:

• Meals: Free or subsidised meals in a staff canteen where meals are provided for all employees on a reasonable (not overly extravagant) scale. The exemption does not apply where free or subsidised meals are provided as part of salary sacrifice or flexible remuneration arrangements.


• Hot drinks and water at work.


• Mobile phone: There is generally no charge to tax where for a mobile phone is provided to an employee.


• Workplace parking for an employee’s car or motorcycle, or facilities for parking bicycles at or near the employee’s place of work.


• Annual / Christmas parties: These must be open to all employees and cost less than £150 per person.


• Medical insurance or medical treatment for employees working abroad as well as one annual medical health check and / or health-screening assessment.


• Long service and suggestion scheme awards, within certain limits.

There is no requirement to pay tax on benefits and expenses covered by concessions or exemptions and they do not need to be included on a tax return.

Companies can use incentive award schemes to encourage their employees in various ways, for example, to sell more of their own goods and services. The award can take various forms including cash, vouchers or other gifts.

Where an employer meets the tax payable on a non-cash incentive award given to a direct employee by entering into a PAYE settlement agreement (PSA), the award is not chargeable to tax on the employee.

With the exception of non-cash awards covered by a PSA, incentive awards made to employees are chargeable as employment income. The value of these awards is calculated as follows:

Cash
The value to use is the total amount of cash awarded.

Vouchers
If the award consists of vouchers, then the value to use is the full cost to the provider of making the award.

Other gifts
If the award is something other than vouchers, then the charge is usually the full cost to the provider of making the award. There are certain exceptions for the very low paid.

HMRC also offer concessions on this tax treatment if employers want to reward employees using certain encouragement awards, suggestion schemes and to reward long service. 

Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. The rates can be used by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel. HMRC accepts there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

Employees can also use the advisory fuel rates to repay the cost of fuel used for private travel. In this case, HMRC will accept there’s no fuel benefit charge. The advisory rates are not binding. Accordingly, if an employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile, this would be accepted.

The latest advisory fuel rates became effective on 1 March 2019. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.

The rates are as follows:

Petrol
Engine size 1400cc or less             11p per mile
Engine size 1401cc to 2000cc        14p per mile
Over 2000cc                                21p per mile

LPG
Engine size 1400cc or less              7p per mile
Engine size 1401 to 2000cc             8p per mile
Over 2000cc                                13p per mile

Diesel
1600cc or less                             10p per mile
1601cc to 2000cc                        11p per mile
Over 2000cc                               13p per mile

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

HMRC now accepts that if you pay up to 4p per mile when reimbursing your employees for business travel in a fully electric company car, there is no profit. While electricity is not considered a fuel for tax and NIC purposes, the Advisory Electricity Rate will be published quarterly alongside the other advisory fuel rates.

There are special rules involving bicycles usually referred to as ‘Cycle to Work’ arrangements. The Cycle to Work scheme was introduced almost 20 years ago to help promote the use of healthy ways to commute to work using an environmentally friendly mode of transport.

Employers of all sizes across the public, private and voluntary sectors are eligible to take part in the scheme with the proviso that no employees or groups of employees are excluded. Note that the Cycle to Work scheme cannot be used if in doing so this would reduce an employee’s gross pay below the National Minimum Wage.

The scheme allows employers to provide (technically loan) bicycles and cyclists’ safety equipment (worth up to £1,000) to employees as a tax-free benefit. Where the scheme conditions are satisfied employees can benefit from a tax and National Insurance Contribution (NIC) reduction of between 32% and 42% through a salary sacrifice scheme. In addition, there is no employer liability to NICs.

What happens at the end of the loan period?

The Cycle to Work benefits only relate to the loan period, however, it is commonplace for an employer or a third party bicycle provider to offer the employee the bicycle / equipment they have been using for sale after the loan period has ended. The bike may be offered to the employee for sale at a fair market value, but this must be done as a separate agreement.

Like to set up a "Cycle to Work" scheme for your business?

If the above scheme is something you’d like to consider for your business please call for more information.