🚲 Healthy and tax efficient: the company bicycle

The company bicycle is a hot topic at the moment. With increasing attention to vitality, the call for sustainability, and rising parking and fuel costs, the bicycle is increasingly seen as a strategic employment condition. But finding the right arrangement is not easy. Over the years, a wide variety of options have emerged.

In this article, we list all the options for employers so that you, as an employer, can make the right choice with optimal tax benefits.

The options available to you as an employer are:

• Reimbursements
• Benefit in kind
• Provision of use
• Cafeteria model (exchange of gross wage)
• A lease construction
• An interest-free loan

We explain the differences below.

Reimbursing a bicycle

The employer can (partially) reimburse the purchase of a private bicycle. A reimbursement for a bicycle is taxable income, unless you designate it as final levy wage within the discretionary scope of the Work-related Costs Scheme (WKR). For a (partial) net reimbursement, you will therefore have to charge the costs to the discretionary scope or gross up the reimbursement. For the consequences of including costs in the discretionary scope, please refer to our WKR blog.

Advantages:

• For the employee, this is one of the two cheapest ways to purchase a bicycle
• The employee is and remains the owner of the bicycle

Disadvantages:

• When grossed up, the reimbursement results in high employer costs, or
• The reimbursement is charged entirely to the discretionary scope

Reimbursement is therefore only suitable for small amounts, incidental reimbursements, or employers with a higher discretionary scope.

Benefit in kind: bicycle as a gift

When a bicycle is granted as benefit in kind, the employee becomes the owner. In simple terms: the employer gives the employee a bicycle as a gift. This is also a form of taxable income, unless you charge the value of the bicycle to the discretionary scope. The full invoice value, including VAT, is charged to the discretionary scope. This also applies to additional options that are inextricably linked to the bicycle. Think, for example, of a child seat. Separate items, such as a lock, are also charged to the discretionary scope if you do not charge the employee for them.

Advantages:

• For the employee, this is one of the two cheapest ways to purchase a bicycle
• The employee is and remains the owner of the bicycle

Disadvantages:

• New (electric) (cargo) bikes are expensive, so the discretionary allowance is quickly used up
• The bicycle belongs to the employee, so the employer loses control over conditions and use

Due to the high purchase prices, provision is becoming less and less common. This option is only suitable for occasional provisions or employers with a higher discretionary allowance.

Provision

When a bicycle is provided, it remains the property of the employer or the leasing company, and the employee may also use it privately. The employee therefore receives the bicycle on loan and must return it at the end of the lease term or employment contract, or purchase it at its residual value.

Employees who use the bicycle privately are subject to a 7% additional tax liability on the value of the bicycle. The value is calculated based on the new value of the bicycle, including VAT. Options that are inextricably linked to the bicycle are also included in the basis on which the additional tax liability is calculated. In practice, however, this costs almost nothing in net terms. For example, a bicycle costing € 3,000 results in a gross additional tax liability of € 17.50 per month. This amounts to a maximum of € 10 per month in net terms, depending on the level of salary. As an employer, you may include the additional tax liability in the discretionary scope, but this is not mandatory.

Advantages:

• There are no costs charged to the discretionary scope, unless you designate the additional tax liability as final levy income
• Low costs for employees in exchange for the use of a new bicycle
• The employer retains control over the use of the bicycle

Disadvantages:

• The employer is responsible for maintaining company vehicles
• The employer must keep a record of the bicycles made available (the bicycle fleet) and their declining residual values

From a tax perspective, this scheme is most attractive for employers.

Cafeteria scheme

Employees can exchange gross wages for a bicycle (scheme). The value of the bicycle is then (partially) deducted from the gross salary. Due to the gross deduction, the employee pays less income tax on their salary. This provides the employee with a tax benefit, but the tax consequences for you as an employer vary greatly depending on the structure. In certain arrangements, the costs are charged to the discretionary scope. These arrangements are explained in more detail in the sections below.

A cafeteria scheme must always be agreed upon in writing. The gross deduction can have negative consequences for future entitlements such as pensions and social security benefits. An employee must agree to this in writing. The deduction must not result in an employee's salary falling below the statutory minimum wage. Employees who earn the minimum wage may be able to exchange their holiday allowance or extra-statutory holiday hours for this. In addition, an exchange may cause problems for expats who apply the 30% ruling, because they are subject to a minimum taxable income. Furthermore, a cafeteria scheme can be arranged within any organization. It is often mistakenly believed that this is only possible within large, international organizations.

When the cafeteria scheme does fall within the discretionary scope

Does the employee exchange gross salary for a bicycle that he or she will own? Then this counts as taxable benefits in kind. The employer must designate this as final levy wage, which reduces the discretionary scope of the WKR. This is a pitfall we often encounter with employers.

When the cafeteria scheme does not fall within the discretionary scope

Is the employee exchanging gross salary for the costs of a bicycle that is made available through the employer or a leasing company? Then the exchange falls outside the discretionary scope. The gross reduction gives the employee a tax advantage. The employer may request a net contribution (deduction) from the employee, but this is not mandatory. A net contribution reduces the additional tax liability.

Advantages:

• No costs charged to the discretionary scope if the employer uses the scheme wisely
• Tax advantage for employees in exchange for the use of a new bicycle
• As an employer, you retain control over the use of the bicycle

Disadvantages:

• The employer is responsible for maintaining company vehicles
• The written agreement is complex to set up correctly
• The scheme often does not work for employees with a 30% ruling
• The scheme often does not work for employees who earn (around) the minimum wage

Bicycle lease

A bicycle lease can either be provided or can be arranged through a cafeteria scheme. The same considerations apply as in the previous paragraphs.

Possible options:

• The employee enters into a lease contract themselves and the employer reimburses the costs (see the section on “reimbursement”)
• The employer makes a bicycle available to the employee (see the section on “provision”)

Interest-free loan

The employer may provide an interest-free loan for the purchase of an (electric) bicycle or cargo bike. The interest benefit is untaxed. However, an agreement must be drawn up for the repayment of the loan. The loan may be repaid via the fixed untaxed travel allowance or via a fixed (higher) net amount per month.

Advantages:

• No costs are charged to the discretionary scope
• Purchasing a new bicycle becomes easier for employees who can only afford to pay for it in installments
• Attractive secondary employment condition without additional costs for you as employer

Disadvantages:

• The loan must be repaid correctly, which creates extra administration
• Clear written agreements must be drawn up, especially with regard to early termination of employment and the repayment of the residual value
• There is no tax advantage for the employee (although there is an interest advantage compared to a regular loan provider)

What is the best choice in practice?

The right choice depends on the employment conditions package, how often a bicycle plan is offered in your organization, and the total discretionary scope.

In practice, we see that employers prefer to work with provisions because it these are most attractive from a tax perspective. If possible, a cafeteria scheme can be used for the employee's own contribution. Lease arrangements are becoming increasingly popular. This allows the bicycle to be offered as a permanent secondary employment condition without putting pressure on the discretionary scope. This keeps the costs manageable for you as an employer.

Frequently asked questions and pitfalls

Many employers struggle with the following questions:

• Does our preference for a certain bicycle plan fit within our discretionary scope, or does it exceed it?
• Is our cafeteria scheme legally correct?
• How do we process the chosen arrangement in the payroll administration?
• Do we have to apply additional tax liability and/or designate it in the discretionary scope?
• How do we safeguard arrangements when employees join or leave the company?
• Can I still reimburse travel expenses if employees use a bicycle?
• Can a bicycle plan only be used for a standard bicycle? Or also for a cargo bike, electric bike, or mountain bike?

The biggest mistakes we see:

• Incorrect use of the cafeteria scheme, resulting in additional tax levies
• Unjustified and incorrect entries in the discretionary scope
• Incorrect determination of the optimal arrangement
• Incorrect processing in payroll administration
• Missing contractual terms or agreements

Where RS Finance makes the difference

A bicycle plan seems simple, but it affects payroll taxes, labor law, contract management, WKR, and payroll administration. That is why many employers choose to have RS Finance set this up for them.

We help you with a customized plan:

• Choosing the right structure
• Optimal use of the cafeteria model
• WKR advice & calculations
• Impact on the net travel allowance
• Calculations of the net impact for employee and employer costs
• Contracts, policy, and the associated written records
• Tax assessment of existing (bicycle) schemes

A well-designed bicycle plan emphasizes your commitment to a sustainable solution, offers an attractive secondary benefit, and helps control costs. This way, you and your employees can breeze through all the complex tax regulations. Would you like to know which structure best suits your organization? Schedule a no-obligation consultation with one of our experts.