Did you know that buying a bike through your business can save you some serious tax?
There is corporation tax, income tax and VAT to be saved by buying a bike which you’re going to use for work through your business. Read on and we’ll tell you how!
I’m not talking about the cycle to work scheme which you may be aware of. This is a scheme which you would normally offer to your employees (if you have them), so they can buy a bike free of tax and national insurance.
However, if you do decide to go ahead with anything below, you need to make sure your employees know they can access a bike through your company using the cycle to work scheme. If you need help with that let me know.
Should I buy a bike through my business?
If you cycle to work, or use your bike for ‘qualifying journeys’, and are looking to buy a bike, then doing it through your business can be highly tax efficient –
- You can recover the VAT
- It qualifies for annual investment allowance (AIA), meaning 100% is written off in the year 1 (saving another 19%)
- There’s no P11d charge as it’s an exempt benefit.
- You’re not drawing the money out the company, so there’s no income tax charge via salary or dividends.
The bike remains the property of the company at all times, but if it’s your company, then it makes complete sense.
And there’s no upper limit if you’re not going to levy a hire charge to yourself (why would you?!)
So a £2,500 bike would save in tax –
VAT saved – £416.67
Corp tax saved – £395.83
Dividend tax (basic rate) – £187.50
Actual cost after tax – £1,500 – saving £1,000!
What if I work from home?
We think it’s eligible (and are currently seeking additional opinions) – if you use it mainly (more than 50%) for qualifying journeys.
This typically means home to work. However, HMRC guidance points us to this section which says –
“It can also include journeys that do not strictly fall within the definition of “qualifying journeys” such as a journey made on a working day between the workplace and shops or other amenities where the distance is no more than 10 miles one-way (20 miles return journey). This is intended to provide access to town centre amenities for employees, typically but not exclusively during a lunch break, without the need for them to use private cars. The journey must take place on a normal working day, so the exemption does not apply to an employee who uses the service on a day when they are not at work.”
So, if you work from home, but cycle to town for lunch, or to the bank, or to make deliveries etc – then your company can claim for the bike.
Will HMRC check?
Yes, they certainly can. So we would recommend keeping a log of business and personal use. However, they’re advised not to push on this.
So make sure that you’re going to use it for work, and then you can save a chunk of cash next time you’re buying a bike in your business!
I’m self-employed / in a partnership, can I do this?Providing you use the bike for work, then you can claim AIA on the asset minus a percentage for private usage. However, if there is private usage, then you can’t recover the VAT.