Travelling to work by bike

Introduction 

As a small business owner, are you thinking about whether you should start travelling to work by bike? You might do so especially in the nicer weather! This guide will aim to give you some top tips if you decide to start commuting to work by bike in the future.

Do you care about the environment and would you also like to save money when travelling to work? If this fits you, what can you do about this? Well, you could use public transportation or alternatively start to travel to work by bike. When you are business owner who is running your own company, you can claim for mileage allowances for business journeys by bike, if you own the bicycle or motorbike privately. The claims are then treated as a business expense and they will save Corporation Tax. Any mileage expenses for a bicycle or motorcycle, just like for a car, are subject to the 24 month rule.

Alternatively, you can claim for the actual cost of the bicycle or motorbike and any running costs, however these are subject to benefits in kind (BIK).

In terms of the clothing to wear when you travel to work by bike, for short journeys, your work clothes should be fine. You could also put on a rain jacket, a vest and some winter gloves if the weather is a bit cooler.

The rates that you can claim 

When considering if you should use a bike to get to work, HM Revenue & Customs (HMRC) publish the rates that you can claim for the use of a private bicycle or motorbike, just like they do for the use of a private car or van.

HMRC refer to the mileage allowances for motorbikes and bicycles as `MAR.’ You can claim mileage allowances, for any business journeys, as expenses from your company.

The amounts that are set by HMRC are currently:

  • Motorbikes at 24p per business mile 
  • Bicycles at 20p per business mile 

There is no lower mileage rate after the first 10,000 miles travelled, like there is for car mileage. The bike mileage rates above apply to the total business mileage incurred by you during the tax year.

Mileage logs   

If you decide to start to use a bike to get to work, you should keep mileage logs for the business journeys. You also have to keep mileage logs when you travel to work locations by private car. However, HMRC is more relaxed with regards to mileage logs for bicycles but you should still keep these.

Furthermore, when you start cycling to work, you should keep the mileage records for the use of a private bicycle or motorbike. These records should be kept separate from any private car usage as the rates of mileage payable are different.

If you reimburse more than the HMRC approved rates, HMRC will tax you on the excess. Therefore, it is vital to make sure that you stay inside the allowed rates.

Please note, you can reimburse the value of any bicycle or motorbike mileage regularly. Most contractors choose to do this every month.

Company bicycle or motorcycle   

Company bicycle 

There is a scheme in place called the Cycle to Work Scheme. Under this scheme, contractors can benefit from the use of a bicycle. In some cases, this is also available for the use of a company motorcycle.

There has been quite a bit of hype brought about by bicycle shops, with regards to the Cycle to Work Scheme. This scheme enables employees who make a salary sacrifice, to use a bike provided by their employer tax-free.

A contractor who has their own company and decides to start travelling to work by bicycle, could buy a bicycle, and the company would save Corporation Tax (CT) on the cost of the bicycle and possibly the VAT too (see below).

Contractors who prefer two wheels but with extra power for longer journeys, may also be able to run a company motorcycle tax-efficiently.

Buying a bicycle through your business   

If you are a contractor who runs their own company and decide to start commuting by bike to work, you may prefer to use a bicycle for your business journeys, without using the salary sacrifice option. The company will be able to claim CT on the cost of the bicycle. The company will also be able to reclaim the VAT, too, if you buy the bicycle from a VAT registered supplier.

The contractor could then buy the bicycle from the business at a later date, at the then market value.

When the company buys the bicycle, there is also the benefit that you are buying this for the company out of pre-tax income. This method is better, when you compare it to paying for a bike on a personal basis out of your post-tax income.

There are rules in place with regards to business and private use of a bicycle. The taxman will tend to look at cases where the contractor is in the main not using the bicycle for business journeys.

There is also lots of choice out there, in terms of the types of bikes that are available today. These could include a road bike or hybrid bike as well as `normal’ bicycles. Your local cycle store will have all of the details.

When a worker starts cycle commuting, travel to their work can include a permanent workplace. HMRC’s rules on what makes up a work journey when considering the provision of tax-free bicycles are more favourable than the normal travel rules that contractors know.

If you decide to purchase a bicycle for your company, there is plenty of choice out there. Please also note, bike lights help you to see the road when it is dark and they also help other road users as well as pedestrians see you. You can use white front and rear red lights on your bike at night, however the legal requirements are a little more complicated regarding front and rear light.

Company motorbike 

When travelling to work, a journey to a contractor’s worksite might not be practical on a bicycle. In this case, they may prefer to use a motorbike instead. Motorbikes, however, do not benefit from the same tax savings as bicycles.

If a contractor’s business purchases a motorbike, there is a BIK charge.

You base this on 20% of the cost each tax year. It may be the case that the company pays for the running costs (fuel, insurance, maintenance, road fund tax, etc.) for the motorbike. If this is so, there is an extra BIK charge of 20% of these annual costs too. When you use the motorbike mainly for business journeys, this will need taking into account in any BIK workings.

The Class 1A NI that is payable on any BIK is 15.05%. The director or employee will also pay tax at their highest rate via their PAYE tax code, which will apply to their salary.

The director can choose to reimburse to their company the BIK elements. If they do this, the actual BIK that is reportable to HMRC will reduce to zero.

Final thoughts

If you care about the environment you may like to think about travelling to work by bike and purchase a company bicycle. This will help you get fitter, cycling to work in the morning and on your ride home in the evening, each day.

You may also decide that you would like a company motorbike to travel to work on. However, before your company buys this, it would be best to weigh up the tax costs first.

Whichever type of bike you choose, there are tax considerations as set out above.

Link to Contractor Advice UK group on 

LinkedIn    https://www.linkedin.com/groups/4660081/ 

Published On: March 28th, 2021 / Categories: Expenses /

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