This scheme was introduced on 1st January 2009 to encourage employees/directors to cycle to and from their place of work and between work places. The reasons for this tax incentive are to reduce carbon emissions and traffic congestion as well as to improve general health and fitness.
So, what are the benefits?
- The employee/director will not be liable to Income Tax, PRSI or USC on the cost of the benefit because the bicycle and safety equipment are exempt from tax up to a limit of €1,000.00. Where the cost exceeds €1,000.00 a Benefit in Kind charge will apply to the balance only.
- The employer does not have to pay employer’s PRSI on the cost of the bicycle and/or safety equipment.
An important point to remember:
The employer cannot reclaim the VAT paid on the bicycle and/or safety equipment.
How does this scheme work?
- This is a voluntary scheme which may be implemented under a salary sacrifice arrangement through the payroll system. Employers should ensure this scheme is generally available to all employees/directors who wish to avail of it.
- The employer provides the bicycle and/or safety equipment to the employee/director who in turn agrees to sacrifice his/her salary every pay period to cover the cost of the benefit. The full cost must be recovered within a period of twelve months. It is important to remember that the employee should settle the outstanding balance in full before the date of retirement or ceasing employment.
- The bicycle and/or safety equipment must be used by the employee/director for “qualifying journeys.” This means all or part of a journey between the employee’s/director’s home and work place or between the normal place of work and another place of work if relevant.
An important point to remember:
If an employee works from home, he/she can still avail of the scheme providing the bicycle is used for work related journeys.
What are the conditions for Salary Sacrifice Arrangements?
- There must be a bona fide and enforceable alteration to the terms and conditions of employment.
- The alteration must be evidenced in writing.
- The alteration may not be retrospective.
- There must be no entitlement to exchange the benefit for cash.
- The salary sacrifice cannot be in excess of the value of the bicycle and/or safety equipment.
- The salary sacrifice cannot be in excess of €1,000.00.
- The choice of benefit instead of cash cannot be made more frequently than once every five years.
- The choice of benefit instead of cash must be irrevocable for the tax year in which it is made.
If the employer fails to implement the scheme properly the exemption will be withdrawn and full taxes at marginal rates together with employer/employee PRSI and Universal Social Charge will be applied.
What records must the employer keep?
As the records in relation to this scheme are subject to Revenue inspection or audit as part of audits and inspections of payroll operations the following documentation must be kept:
- Invoices for bicycles and/or safety equipment.
- Salary Sacrifice Arrangement documentation between the employer and employee.
- The employer will be required to obtain a signed statement from the employee/director that the bicycle is for his/her own use and will be used mainly for the purposes of travel to and from work or between places of work.
Additional Points to keep in mind:
- If an employee avails of the scheme for even a small amount of expenditure relating to the provision of bicycles and/or safety equipment he/she will not be entitled to avail of it again for five years.
- The exemption will not apply in situations where the employee purchases the bicycle and/or safety equipment and the employer reimburses the cost.
- There are no limits to the bicycle and/or safety equipment purchased by the employer.
- The scheme only applies to new bicycles and/or safety equipment purchased.
- Motorcycles, scooters and mopeds are not included in this scheme.
- Where an employee advises their employer that the bicycle will no longer be used for qualifying journeys, no further tax relief by way of the salary sacrifice scheme will be allowed.
- Where the cost of the bicycle exceeds €1,000, the supplier must provide two invoices: one from supplier to employer for €1,000 and the second from supplier to applicant for the balance.