CYCLE TO WORK
The employer gives the employee a (up to) €1000 loan tax free for the purpose of buying a bicycle out of the employees own salary, what this means is your employer can pay a tax compliant bicycle shop €1000 of your wages before its taxed by the government & that’s how you the employee saves on tax. If you are on the higher tax bracket you will save up to 52% of the total, If on the lower tax bracket you save up to 32% of the total. Each person can only do this once every 5 years.
How do I pay?
Usually your employer pays the supplier for the bicycle and sets up a ‘salary sacrifice’ arrangement from your salary over an agreed time frame (which cannot be more than 12 months). This generally means that you visit the shop(City Cycles D3 of course) , select the equipment and bicycle you wish to buy and have the shop invoice your employer directly for the cost. Note that the tax exemption does not apply if you pay for the bicycle and are reimbursed by your employer – they must pay for the bicycle.
The repayment for the bicycle and equipment is then deducted from your gross salary (this means before income tax, PRSI, pension levies or Universal Social Charge are deducted). These deductions can be made weekly, fortnightly or monthly depending on your salary payment arrangement.
Mary earns €40,000 per year which is subject to tax as we all know only too well by the government.
Next year Mary will earn €40,000 but €1000 of it will be given to a bicycle shop before deductions only leaving €39,000 for the government to tax, i.e. giving the employee tax relief on €1000 before the government get their hands on it.
Basically you are not going to let the government take any Income tax (41%) USC (5.3%) or PRSI (4%) from that €1000 that’s how you save, i.e. 50.3% (percentages will vary depending on earnings)
No need to claim it, inform Revenue or fill out any forms. The employer will simply take equal monthly payments to repay the €1000 advanced tax free sum from your own wages, however the government won’t see a cent of that €1000 to make deductions, it couldn’t be simpler.
So Mary still earns €40,000 as last year but only €39,000 is seen by the government as the other €1000 has been taken out of the equation for that particular year & given to a bicycle shop. This can be done once in every 5 years under the scheme.