Bike To Work Tax Saving Scheme

Cycle to work: Legacy of a tax scheme that really paid off

The incentive means bicycles and accessories can often be bought for half the cost

The legacy left behind by the coalition of Fianna Fail and the Green Party, which left office under a black cloud of economic calamity in 2011, could most charitably be described as mixed. It was, after all, an administration which presided over – if not precipitated –the most catastrophic financial crash in the history of the State, a crash this State has yet to fully recover from.

One of the few enduringly positive things left behind by that administration was the cycle-to-work tax incentive scheme. After all, there are not many government initiatives which save consumers €1,000 a year while reducing their stress levels, helping them lose weight, strengthening their hearts, increasing their punctuality and giving them an average of six more years of healthy active life.

A recent report published in the Lancet showed cyclists to be slimmer and likely to live longer than their car-driving counterparts. Poring over biological data from more than 150,000 people across the UK and studying the wellbeing of half a million others aged between 40 and 69 allowed scientists to definitively state that getting on your bike is simply better for you.

The study showed people who commute on bicycles have a significantly lower body fat percentage and body mass index in middle age compared to people who rely on cars. Men who cycle to work weigh an average of 5kg less than those who drive while the average woman cyclist weights 4.4kg less than women who commute by car.

And the health benefits of cycling to work are complemented by financial ones thanks to the late Brian Lenihan

Safety equipment

In 2009, when he was minister for finance, he rolled out tax breaks to would-be cyclists and their employers. Under the cycle to work scheme, employees working for participating companies – the scheme is voluntary – can buy a bicycle and any associated safety equipment up to a maximum value of €1,000 and the purchase is treated as a tax-exempt benefit-in-kind.

The scheme is pleasingly simple and requires no upfront payment on the part of the employee which makes it still more attractive. Under it, employers pay for bicycles and bicycle equipment for their employees and then the employee pays it back through a series of salary deductions which can last up to 12 months. The employee is not liable for tax, PRSI or the Universal Social Charge (USC) on their repayments. This means that someone who is on the highest rate of tax will save around 50 per cent on the cost of the equipment.

The tax break can be attached to new bicycles or “pedelecs”, or battery-powered bikes, which require some effort on the part of a cyclist. It can also be applied to bicycle helmets, bells, lights, panniers, locks, pumps, and puncture repair kits and reflective clothing and rain gear – in short everything that an aspiring cyclist could possibly need to get on their bike.

Upfront payment

Given the nature of the scheme – and the fact that it involves an upfront payment from an employer and then monthly deductions over a maximum of 12 months – both employee and employer have to sign up. Once an employer agrees to pay an agreed supplier, all the cyclist needs to do is visit that shop, select what they need after which the shop invoices the employer directly for the gear.

It is important to note that the tax exemption will not be applied if a person pays directly for a bike and is then reimbursed by an employer. The employer must pay for the bicycle. Once that is done the repayment for the bicycle and equipment is deducted from a person’s gross salary.

A person can only take advantage of the scheme once every five year so if a bicycle bought under the scheme is stolen on day one, a cyclist will have no option but to wait until the allotted time has passed before they can get a second tax break.

There is another rule. People who sign up must commit to using their new bicycle largely for qualifying journeys to and from work or train stations where the rest of the journey can be completed.

Employers do not have to monitor this rule and nor will the State so it is impossible to enforce, and all that is asked someone entering the scheme is that they sign a statement saying that the bicycle will be for their own use and used mainly for commuting purposes.

The scheme has worked and in 2014 more bicycles (95,000) were sold in Ireland than cars (91,732). Is it any wonder? Not only can a consumer get a bike and all the ancillary equipment at half price, they can also knock hundreds – if not thousands off the cost of their commute.

A commuting cyclist could easily spend more than €1,000 on getting to and from work on their bike instead of in a car or on public transport. Such savings are not to be sniffed at.