Cycling makes fiscal sense
Cycling is on the rise, both for leisure and home/work travel purposes. The current COVID-19 crisis gave many people that little extra push to jump on their bikes more often. Cycling is not only healthy and ecologically sound; in recent years, it has also become interesting from a fiscal point of view.
Which bikes offer tax benefits?
Virtually all types of 'bicycles' qualify for the tax benefits provided by law. They include traditional bikes, racing bikes, mountain bikes, city bikes, cargo bikes, adapted three-wheel bikes for the disabled, bikes driven through hand grips, folding bikes, bikes with electric pedal assistance up to 25 km/h and finally speed pedelecs. The latter, however, have only been included since the 2018 financial year, when the concept of a 'bicycle' was extended.
Not included are steps and skateboards, electric or otherwise, hoverboards, monowheels and Segways.scooters and skateboards, electric or otherwise, hoverboards, monowheels and segways
What are the benefits for the employee?
Non taxable benefit in kind
From a tax point of view, commuting is not a professional activity and must be organised privately. If an employer provides a company bicycle including accessories, maintenance and storage costs for an employee’s/manager’s home/work travel, this will in principle be considered a taxable benefit in kind.However, tax legislation provides an exemption in this case, which means that it is not considered a taxable benefit in kind. This benefit is tax exempt and does not have to be included on the tax return.
In a recent tax ruling of 7 July 2020, it was considered that this is the case if the employee undertakes in writing to make at least 20% of his home-work trips by bicycle. In an earlier ruling of March 12, 2019, a commitment of at least 10% of the commuting trips with the company bicycle was also accepted as “actual” use.
A company bicycle can also be used privatelywithoutrestriction without any taxable benefit in kind. There is only a taxable benefit in kind if the bicycle is used for private purposes only.
Tax-free bicycle allowance
An employer may grant their employee or manager a tax-free mileage allowance for the use of the bicycle for commuting or professional travel. This also applies to a company bicycle provided by the employer.
This allowance is compensation for the cyclist's 'efforts' and, for example, for the extra wear and tear on their clothing. It is completely tax-free as long as the amount does not exceed 0.145 euro (0.24 euro indexed for the 2021 assessment year) per kilometre actually travelled by bicycle.
A bicycle allowance must be included on the tax return. If it exceeds the amounts mentioned above, the part that exceeds the limit becomes taxable as part of the beneficiary’s salary.
Someone who travels to work partly by bike and partly by car can combine the bicycle allowance with other travel allowances such as the reimbursement of travel expenses with their own car.
If an employee or manager chooses to corroborate their actual professional expenses (instead of applying the statutory flat rate) and to charge their actual commuting expenses by bicycle, the bicycle allowance shall not be tax-free, at least not for the same route.
No social security contributions
Since 1 January 2017, the use of a company bicycle has been completely exempted from social security contributions for commuting between home and work, for professional journeys, and for purely private journeys.
A bicycle allowance is also fully exempt from social security contributions, providing the limit of 0.24 euro per kilometre (2021 assessment year) is not exceeded.
This favourable regime can only be applied if a company bicycle is effectively and regularly used for home/work travel. If the bicycle is only used privately, social security contributions shall be due on this wage benefit.
What are the benefits for the employer?
Deductible professional expenses
Any costs incurred by an employer specifically to encourage the use of a bicycle for their employees’ home/work travel shall henceforth (as of assessment year 2021) be 100% deductible as professional expenses. Before 1 January 2020, this was still 120%.For sole traders’ personal income tax, the 120% deduction still applies.Once again, this is on condition that an employee actually uses the bicycle for journeys to and from work.
The following costs qualify:
- Costs related to the acquisition, maintenance and repair of company bicycles. Rental or leasing did not qualify for the 120% deduction, but it does for the 100% deduction.
- Costs associated with bicycle accessories such as a helmet, padlock, bicycle pump, bell, bicycle light, reflectors, tool kit, bicycle pannier, battery and charger for an electric bicycle, etc. Ordinary, sports or protective clothing is not included.
- Costs for the acquisition, construction or conversion of a property intended for the storage of (qualifying) bicycles for personnel during working hours or for the provision of changing rooms or sanitary facilities, with or without showers.
It should be noted that the 'extra' 20% deduction that applied until recently was only a temporary exemption. Companies had to book this 20% as a tax-free reserve through a separate liabilities account (i.e. inviolability condition). This means that tax has to be paid on it at the latest at the time of the liquidation of the company.
Conclusion: legislator lends a hand with fiscal advantage
Today, using a bike for home/work travel is very much encouraged from a tax point of view, with benefits for both the employee/manager and the employer. It remains to be seen whether the current cycling craze is a permanent feature. Nevertheless, occasionally using a bicycle is definitely a healthy alternative to sitting in traffic jams every day.
Do you have further questions about company bicycles or would you like more information? If so, do not hesitate to contact our specialists.