The basics of how the cycle to work scheme
works in the Republic of Ireland Revision “A”
It’s this simple:
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:
So an example:
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. **See www.cycletowork.ie for government scheme rules**
I hope this makes the scheme basics understandable in a few sentences, we receive dozens of calls a week from people who are confused, but don’t be.
Make sure the bicycle shop is tax compliant (has a tax clearance certificate) & keep the invoice in your normal way for the bike purchased to prove it was bought under the scheme rules.
You can buy a bicycle any where you like under the Government’s scheme rules (section 9.6) if your employer will advance the shop €1000 of your salary as they are legally entitled to do, you do not have to go through a pre-