As a small business owner and limited company contractor, are you considering whether you should start travelling to work by bike? This may be a good idea, especially in the more excellent weather. This guide will give you some top tips to consider when you travel to work by bike. You can think about these if you decide to start commuting to work via bike in the future.
Do you care about the environment and would like to reduce your carbon footprint? Another thought is, would you also like to save money when travelling to work? If this fits you, what can you do about it? Well, you could use public transportation or start to travel to work by a new business bike.
You can claim mileage allowances for business journeys when you are a business owner who runs your own company. This includes when you commute to work by a bicycle or motorbike that you own privately. The claims are then treated as a business expense and will save Corporation Tax. Please note that any mileage expenses for a bicycle or motorcycle, like for a car, are subject to the 24-month rule.
Alternatively, your business can claim the cost of the business bicycle or motorbike. In addition, it can claim for any running costs. However, both are subject to benefits in kind (BIK).
What to wear when cycling to work
In terms of the clothing to wear, what should we consider here? When you start the daily commute by bike to work, your work clothes should be fine for short journeys. If the weather is a bit cooler, you could wear a rain jacket, vest, and winter gloves.
The rates that you can claim
What rates can you claim when you use a bike to get to work? Periodically, HM Revenue & Customs (HMRC) publishes the rates you can use to work out your claim. There are different rates for using a private bicycle or motorbike, just like there are for using a private car or van.
HMRC refers to motorbikes and bicycles’ mileage allowances as `MAR.’ You can claim mileage allowances, for any business journeys, as expenses from your company.
The amounts that HMRC sets 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 when you are travelling to work by bike, unlike there is for car mileage. The bike mileage rates above apply to the total business mileage incurred by you during the tax year.
If you start using a business 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. HMRC is more relaxed regarding bicycle mileage logs; however, you should keep these.
Furthermore, when you start cycling to work, please keep the mileage records for a private bicycle or motorbike separate from any personal car usage. The reason that these records should be kept separate is that the rates of mileage payable are different.
Please note that when you are travelling to work by bike, you can also regularly reimburse the value of any bike or motorbike mileage. Most contractors choose to do this every month.
If you reimburse more than the HMRC-approved rates, HMRC will tax you on the excess. Therefore, it is vital to ensure you stay within the allowed rates.
Company bicycle or motorcycle
There is a scheme in place called the contractor Cycle to Work Scheme. Under this scheme, as a limited company contractor, you can benefit from the use of a bicycle. In some cases, this is also available for a company motorcycle.
There has been quite a bit of hype by bicycle shops regarding the Cycle to Work Scheme. This scheme enables employees who make a salary sacrifice to use a bike their employer provides tax-free.
A contractor who has their own company and decides to start travelling to work by bicycle could buy a business bike. The company would save Corporation Tax (CT) on the bicycle cost. In addition, it may reclaim the VAT on this, too (see below).
Buying a bicycle through your business
Suppose you are a contractor who runs your own company, and you decide to start commuting by a business bicycle to work in the future. In that case, you may prefer to use a bike for your business journeys without the salary sacrifice option. The company can claim CT on the cost of the bicycle. The company will also be able to reclaim the VAT if you buy the bike from a VAT-registered supplier.
The contractor could buy the bicycle from the business later, at the market value.
When the company buys the bicycle, there is also the benefit that you are purchasing 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. This is because you would pay for this out of your post-tax income.
There are rules regarding the business and private use of a bicycle. The taxman will tend to look at cases where the contractor is not using the bike for business journeys.
Plenty of choices
There are lots of choices of bikes out there if you decide to start travelling to work by bike. This is in terms of the types of bikes that are available to buy today. These could include road bikes, mountain bikes, cargo bikes, hybrid bikes, and `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 are quite favourable when using the provision of tax-free bicycles. This is when we compare it to contractors’ usual travel rules.
As mentioned, if you purchase a bicycle for your company, there is plenty of choices. While on the road, you can use hand signals when required. It is important to note that this will help other road users know which direction you are going.
Also, bike lights help you see the road when it is dark. They also help other road users, as well as pedestrians, see you. Generally, 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 lights, which you should read up on before using a bicycle on the road.
A journey to a contractor’s worksite might not be practical on a bicycle when travelling to work. In this case, some contractors who prefer two wheels may opt for extra power for longer journeys. As a result, they may choose to use a motorbike instead. It could be the case that they may also be able to run a company motorcycle tax-efficiently through their business. 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 the BIK 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 to be included 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. The BIK will be added to their PAYE tax code which is applied to their salary to calculate the Income Tax each pay period.
The director can choose to reimburse the company for the BIK elements. If they do this, the actual BIK reportable to HMRC will reduce to zero.
If you care about the environment, you may decide to commute to work by bike in the future. This will help you get fitter if you are travelling to work by bike on a regular basis. Cycling to work in the morning and on your ride home in the evening, each day will improve your physique.
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 the tax costs first.
Whichever type of bike you choose, there are tax considerations as set out above.
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