Is a Company Motorcycle tax efficient?
Posted on 28th June 2016
At first glance, a company car may appear to be a fantastic perk, but once employees start looking at the emissions based company car tax they’ll have to pay, the luxury of having one may begin to seem like a reluctant or unnecessary expense. And once we consider the National Insurance costs to the employer and the delay in claiming deductions for depreciation, such as capital allowances, it becomes clear that a company car is unlikely to be tax efficient from either side. But what about a company motorcycle?
Less expensive to purchase or lease, cheaper to run, easier to store and park, and may even cut down the amount of time spent sitting in traffic. Perhaps more importantly, taxes on motorcycles differ vastly from those associated with company cars. We’ve outlined five key benefits to employee and employer in choosing a company motorcycle over a company car.
Reason 1: Benefit in Kind Tax
Benefit in kind tax is based on CO2 emissions, which means that in order to keep these costs down when choosing a company car, an employee would need to choose a very low emission car. However, when it comes to company motorcycles, 20% of the purchase price (including VAT) is used to calculate the benefit in kind tax instead. And as the tax rule is based on the purchase price and not the list price when new (as is the case with company cars), it makes no difference whether the car is new or used.
It could be even more tax efficient for an employee to purchase a personal motorbike and claim back business mileage from the company at the HMRC approved rates. This would mean no benefit in kind tax at all!
Reason 2: Less to pay in National Insurance Contributions
Businesses pay Class 1A National Insurance Contributions (NIC) at 13.8% on most benefits, including company cars and motorcycles. Because this is paid on the taxable benefit in kind tax, a company motorcycle worth £8,000 would incur NIC charges of £220.80, whereas a company car of the same value would incur significantly higher costs of £4,300. Surely enough of an incentive to consider two wheels instead of four.
Reason 3: Corporation Tax Relief
Motorcycles and cars used to be treated the same in terms of tax, but since 2009 they have been classified as an asset under plant and machinery, for capital allowance purposes. This means 100% Annual Investment Allowance (AIA) can be used to give the company Corporation Tax relief on the whole purchase cost in the tax year of purchase. If there is some private use then the AIA would need to be reduced accordingly, but all business use can be claimed. For example: if a motorcycle is purchased for £12,000, but is used for personal use 25% of the time, £9,000 could be deducted from profits for tax purposes.
Reason 4: Recover the VAT
Company cars are automatically blocked on the recovery of VAT, unless they are used 100% for business. However, as motorcycles are considered an “asset”, VAT can be recovered on the purchase, as long as the company isn’t operating under the Flat Rate Scheme. Those that are on the Flat Rate Scheme can still claim the VAT on a motorcycle worth more than £2,000, so long as it is used 100% for business. Where the motorcycle is only partially used for business, the personal usage simply needs to be deducted from the reclaim.
Reason 5: No tax limited for running costs
There is no higher tax limit on what can be claimed in the company’s tax calculation for running costs.
If you have any questions regarding the tax efficiency of a company motorcycle, or benefit-in-kind tax queries in general, please feel free to get in touch.
Nicola J O'Sullivan -
Founder | Xero Champion | IR35 Expert
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