Reply to: Contractors car leasing

[Clare@InTouch]

Clare,

Many years ago I had a company bike. Naturally it paid all the running costs. Can't remember what the regime was then I think it might have been 10%.

However, at that time it was possible to reclaim the VAT. Is this still possible?

My co owned all sorts of things in it's time. The ride on mower and Vintage tractor were two particular favourites of HMIT in one inspection.

You can reclaim some of the VAT, depending on how much business vs personal use there is. The HMRC guidance uses aircrafts and boats as examples, but it would apply equally to any company asset apart from those dealt with specifically under different rules (like cars).

Details are here: HM Revenue & Customs: Purchases for both business and private use: reclaiming VAT

[ASB]

Morning

You're basically talking about use of a company asset here, so the HMRC guidance is this: HM Revenue & Customs: Assets - made available to an employee

The keys parts are that you're charged a 20% BIK based on the market value when first provided, which is a massive difference to a car BIK which is always based on list price regardless of how much you pay. So, a £10,000 bike would create the £2,000 BIK on which you'd pay 20% income tax = £400, assuming you're a basic rate taxpayer for that type of income (which you will be if your salary, bank interest and rental income etc doesn't take you into higher rates - ignore dividends for this purpose).

The company can pay for safety equipment too, so crash helmet etc is fine (I'm sure you could justify the lederhosen if you called yourself Hans and did a little dance whilst drinking beer). It can also pay for repairs and maintenance to the bike, although running costs are added to the BIK value.

You can reduce the benefit in kind by any business use, so just keep track of business miles vs personal miles and take away the relevant percentage.

Obviously you can't claim the mileage if it's a company asset, so you need to consider if 24p a mile tax free works out better for you. Depends how many miles you do as to whether that's a better option, but you'd have to do a fair few! The mileage on the bike, if you decided to keep it private, has no interaction with mileage you may be claiming on a private car you use for business.

The bike would be classed as Plant & Machinery in your accounts, so you'd get 100% Annual Investment Allowance in year 1 and the subsequent reduction in CT. Bear in mind that this allowance can be effectively clawed back if you sell the bike later on, depending on whether the asset is pooled or not (it probably will be, in which case the potential clawback won't crystallise until you close the company down).

If you transfer the bike to yourself at a later date you can reduce the value you have to pay the company by the value of any amounts already taxed as a BIK, so worth thinking about after a few years and doing some calculations.

Clare,

Many years ago I had a company bike. Naturally it paid all the running costs. Can't remember what the regime was then I think it might have been 10%.

However, at that time it was possible to reclaim the VAT. Is this still possible?

My co owned all sorts of things in it's time. The ride on mower and Vintage tractor were two particular favourites of HMIT in one inspection.

[Clare@InTouch]

Best line award 2013 contender?

If I was a tax inspector I'd totally let people get away with that

[kevpuk]

I'm sure you could justify the lederhosen if you called yourself Hans and did a little dance whilst drinking beer

Best line award 2013 contender?

[Clare@InTouch]

Interesting to hear from an accountant who has actually done this for their clients. Can you help us out with a worked example of this. Pretty please.

Let's consider a £10,000 bike would create a £2,000 BIK if there was significant private use. But what counts as significant? What if the bike was 90% business travel and 10% private use. Would that reduce the value for BIK to £200? Or could you argue that only 10% of the mileage being private was an "insignificant" use of the bike and that this was merely incidental to the main business purpose as you would with a company laptop or phone which is primarily for business use but with incidental private use?

And considering the 90/10 business/private use, what if the employee made a contribution of 10% of the running costs of the bike to the company - would that remove the BIK (just thinking about simplifying the accounts).

The other question is safety equipment. I'm thinking helmet, boots, gloves, lederhosen, body armour etc which would be strictly for bike use only and clearly have no duality of purpose (not for me anyway - each to their own of course!). The bike jacket might be the only thing I'd wear other than on the bike. Would all that be allowable as a business expense for "safety equipment"?

Morning

You're basically talking about use of a company asset here, so the HMRC guidance is this: HM Revenue & Customs: Assets - made available to an employee

The keys parts are that you're charged a 20% BIK based on the market value when first provided, which is a massive difference to a car BIK which is always based on list price regardless of how much you pay. So, a £10,000 bike would create the £2,000 BIK on which you'd pay 20% income tax = £400, assuming you're a basic rate taxpayer for that type of income (which you will be if your salary, bank interest and rental income etc doesn't take you into higher rates - ignore dividends for this purpose).

The company can pay for safety equipment too, so crash helmet etc is fine (I'm sure you could justify the lederhosen if you called yourself Hans and did a little dance whilst drinking beer). It can also pay for repairs and maintenance to the bike, although running costs are added to the BIK value.

You can reduce the benefit in kind by any business use, so just keep track of business miles vs personal miles and take away the relevant percentage.

Obviously you can't claim the mileage if it's a company asset, so you need to consider if 24p a mile tax free works out better for you. Depends how many miles you do as to whether that's a better option, but you'd have to do a fair few! The mileage on the bike, if you decided to keep it private, has no interaction with mileage you may be claiming on a private car you use for business.

The bike would be classed as Plant & Machinery in your accounts, so you'd get 100% Annual Investment Allowance in year 1 and the subsequent reduction in CT. Bear in mind that this allowance can be effectively clawed back if you sell the bike later on, depending on whether the asset is pooled or not (it probably will be, in which case the potential clawback won't crystallise until you close the company down).

If you transfer the bike to yourself at a later date you can reduce the value you have to pay the company by the value of any amounts already taxed as a BIK, so worth thinking about after a few years and doing some calculations.

[Wanderer]

Good suggestion, we have a few clients who do this. You only pay BIK on 20% of the asset value when it was first provided, and that can be further reduced for business use, so quite cost effective if you like bikes.

Interesting to hear from an accountant who has actually done this for their clients. Can you help us out with a worked example of this. Pretty please.

Let's consider a £10,000 bike would create a £2,000 BIK if there was significant private use. But what counts as significant? What if the bike was 90% business travel and 10% private use. Would that reduce the value for BIK to £200? Or could you argue that only 10% of the mileage being private was an "insignificant" use of the bike and that this was merely incidental to the main business purpose as you would with a company laptop or phone which is primarily for business use but with incidental private use?

And considering the 90/10 business/private use, what if the employee made a contribution of 10% of the running costs of the bike to the company - would that remove the BIK (just thinking about simplifying the accounts).

The other question is safety equipment. I'm thinking helmet, boots, gloves, lederhosen, body armour etc which would be strictly for bike use only and clearly have no duality of purpose (not for me anyway - each to their own of course!). The bike jacket might be the only thing I'd wear other than on the bike. Would all that be allowable as a business expense for "safety equipment"?

[northernladuk]

Perhaps if the company bike has a simultaneous passenger you can bump the rate up too.

That is my good lady you are talking about you bounder!!

(How much will it be bumped up by and how many passengers are acceptable?!?)

[kevpuk]

So I can claim 20p/mile for the company bike? That willl make up for the lack of secretarial work she does I pay for and don't get.

Perhaps if the company bike has a simultaneous passenger you can bump the rate up too.

Think I saw a movie along these lines once.....

[ASB]

I recall you get an extra 5p for taking a passenger in the car.

Perhaps if the company bike has a simultaneous passenger you can bump the rate up too.

[TheFaQQer]

So I can claim 20p/mile for the company bike? That willl make up for the lack of secretarial work she does I pay for and don't get.

I can't imagine you getting many miles in

[Clare@InTouch]

So I can claim 20p/mile for the company bike? That willl make up for the lack of secretarial work she does I pay for and don't get.

How rude!

[northernladuk]

5. Get on your bike! Your company can pay you 20p/mile if you ride a bicycle.

So I can claim 20p/mile for the company bike? That willl make up for the lack of secretarial work she does I pay for and don't get.

[Clare@InTouch]

Don't let my wife read this, please.

Ooooh bribery!

"Dear Mrs FaQQer........."

[northernladuk]

4. Get a company motorbike - bikes are specifically out of the scope of the rules which would apply to a car or van. This means you can treat the bike as a capital asset and the BIK is only on the private element of the use. If its exclusively for business use then you can reclaim the VAT too. This one will make your accountant scratch their head (and probably hate you) but apparently it is doable.

[TheFaQQer]

Good suggestion, we have a few clients who do this. You only pay BIK on 20% of the asset value when it was first provided, and that can be further reduced for business use, so quite cost effective if you like bikes.

Don't let my wife read this, please.