Should your company buy your bike? - Go Figure Financial | Bookkeeping Services Manchester

olivia26264
3 minutes ago
3 min read

Getting around a city by bus, car or taxi can be frustrating, with traffic congestion often making journeys slow and unpredictable. Travelling by bicycle can be quicker, cheaper and better for the environment. If you run your own limited company, buying a bicycle through the company can also be a tax-efficient way of providing transport for commuting and business travel. However, there are tax rules to consider.

Option 1: The company buys the bike

The simplest approach is for the company to buy the bicycle and retain ownership. If the company is VAT-registered and the bike is used for the business, it can normally reclaim the input VAT. The cost (excluding recoverable VAT) will usually qualify for capital allowances, often giving 100% tax relief through the annual investment allowance. VAT on accessories such as helmets, lights, locks and protective clothing may also be recoverable, with the net cost deductible for corporation tax.

From the employee's perspective, this arrangement can be surprisingly attractive. In order for there not to be a benefit in kind charge on the employee, HMRC sets three conditions:

· there must be no transfer of ownership of the cycle to the employee;

· the employee must use it mainly for qualifying journeys; and

· cycles must be available generally to employees.

‘Qualifying journeys’ include commuting between home and work, as well as business travel between workplaces. Electrically assisted pedal cycles are also covered by the exemption.

The key requirement is that more than 50% of the bicycle's use is for qualifying journeys. Leisure cycling is permitted, provided it does not become the bike's main use. HMRC does not normally expect detailed mileage records to be kept and accepts

the 'main use' test unless there is clear evidence that qualifying journeys account for less than half of the use.

There is no need for HMRC approval or a formal scheme. The company simply purchases the bicycle and makes it available to a director or employee. However, be aware that HMRC requires bicycles to be available generally to employees. For companies with only one director and no other staff, this condition is usually straightforward.

Option 2: Using the cycle to work salary sacrifice scheme

The cycle to work scheme is the option most people have heard about in relation to using a company-provided bike. Instead of buying the bike personally, an employee agrees to give up (‘sacrifice’) part of their gross salary in exchange for the use of a bicycle provided by their employer. This method of purchase can prove beneficial for both employee and employer as the employee’s salary is reduced before tax and NIC are calculated.

For employees generally, salary sacrifice cannot reduce gross pay below the National Minimum Wage. However, the position is often different for company directors who are paid using the low salary/dividend method of recompense. In these circumstances, reducing an already modest salary through salary sacrifice may produce little additional tax or NIC saving.

The salary sacrifice route also involves more administration. There must be a formal hire agreement, salary reductions need to be recorded correctly and there may be additional paperwork depending on how the scheme is operated.

Another consideration comes at the end of the hire period. If the employee wishes to own the bike personally, they will usually need to pay its fair market value to prevent a taxable benefit in kind being levied. HMRC publishes guidance and an optional simplified valuation table, setting percentages of original price based on the bike's age. When calculating the original price, safety equipment fixed to the cycle such as lights

and bells is included, but equipment worn such as helmets or reflective clothing is not. Failing to follow these rules could create a taxable benefit.