Can my limited company buy me a bicycle?
Posted on 27th August 2020
In 1999, the UK government introduced the ‘cycle to work’ scheme. In most cases, this is an annual tax exemption that allows a business to loan bicycles and cycle safety equipment to employees as a tax-free benefit. This tax break has had a positive impact on health in the workplace and the motivation of employees - and extra bonus, it's also encouraged people to take up physical activity! It all sounds well and good, but is this scheme suitable for limited companies?
The ‘cycle-to-work’ tax breaks also apply to the directors of one-person limited companies in exactly the same way as they do to regular employees of a large business. This means that the company (the employer) can buy a bicycle and any safety equipment needed, then loan it to the director (the employee) for any qualifying business journeys. There is no need to draw up a formal agreement, and you don’t need prior approval from HMRC. Result!
Your company can directly purchase the bike and reclaim VAT (if applicable) on the price of purchase. For corporation tax purposes, a deduction can be claimed on the full cost of the bike using your capital allowances annual investment allowance.
It’s also acceptable for the company to purchase and provide safety equipment that a cyclist would need, including helmets, high visibility clothing, cycle clips, and other items. These are treated as revenue expenditure, eligible for corporation tax relief.
There are some conditions that must be met in order to properly qualify for the deductions:
Ownership of the bike must not be transferred to the employee during the period of the loan. The bike must remain owned by the company.
The equipment must be used mostly for qualifying journeys. This broadly means that the bike should be for at least 50% business use. For example, journeys between home and work, part of those journeys (such as to a train station), travel to clients, or travel between one workplace and another.
This travel to work could include a permanent workplace, so the definition of what qualified as a work journey for providing tax-free bikes is wider than normal rules about travel. However, if the bike is mostly outside of work purposes, then a benefit-in-kind charge arises, and the company must complete a P11D form on the assessable value.
For the employee, there is no taxable benefit-in-kind caused by using the bike, so there is no need to reduce their salary in order to offset the cost of the bike. The director could potentially save on income tax, as the bike is being funded with gross fee income and not personal income. This could save between 20-25% in comparison with being purchased personally, depending on what the director earns.
If the bike is transferred into the personal ownership of the director later on, then a taxable benefit charge will come up, based on the market value of the bike at that time. This differs a little from the normal rule that states that a taxable benefit charge arises in the value of the bike at the time it was first given to the employee to use. When the bike is transferred, the company will have to pay corporation tax on the market price, but the director might have gained noticeable tax relief on the purchase of the bike.
It is important to remember that the company owns the bike, which means that the cost of any repairs will be the responsibility of the company.
It is possible to claim mileage for bikes that are personally owned but still used for journeys to and from a temporary workplace, in a similar way to how mileage can be claimed for using a privately owned car for a business journey. HMRC will allow a cyclist to claim 20p per mile for business journeys.
There are other benefits to using a bike too. On average, cycling an extra five miles to work and back every week will burn around 4,500 extra calories for the average person, and will reduce their carbon footprint by about 45kg CO2. These health benefits, alongside the very generous tax breaks that are on offer, make it well worth thinking about swapping your car for a bike to get to work or your work-related meetings!
If you're not sure about whether your company qualifies for a bike, or you just need help claiming your mileage expenses, feel free to get in touch with us today!
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
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