Are you thinking about whether you should start travelling to work by bike? You might do so especially in the nicer weather!
Do you care about the environment and would you like to reduce your costs? If you this is you, what can you do? Well, one good thing could be to decide to start travelling to work by bicycle. What’s more, if you are running your own company, you can claim for mileage allowances for work journeys. These claims will be for your journeys if you own the bicycle or motorbike privately. These claims are then treated as a business expense. Any mileage expenses for a bicycle or motorcycle, just like for a car are subject to the two year rule.
On the other hand, you can claim the actual costs, but this is subject to benefits in kind (BIK) if your business purchases the bicycle or motorcycle.
The rates that you can claim
When considering if you should be travelling to work by bike, 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 refers to the mileage allowances for motorbikes and bicycles as `MAR.’ You can claim mileage allowances for business journeys from your business as expenses.
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 like there is for car mileage. These rates apply to the total business mileage incurred by you during the tax year.
If you decide to start travelling to work by bike, you should keep mileage logs for the business journeys when you are travelling to work by bicycle (or motorbike). Just as you would in the same way for mileage that you travel in your private car. HMRC is more relaxed with regards to mileage logs for bicycles. However, contractors should still keep these.
You should keep the mileage records for the use of a private bicycle or motorbike separate from any private car usage. You need to do this because the rates payable are at different rates.
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.
You can also reimburse any bicycle or motorbike mileage regularly. Most contractors choose to do this every month.
Company bicycle or motorcycle
There is a scheme in place called the Cycle to Work Scheme. Under this, contractors can benefit from the use of a bicycle. In some cases, this is also available to 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) 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 decides to start travelling to work by bike, 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.
There is also the benefit that you are buying the bicycle 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.
The rules with regards to business and private use of the bike still apply.
The taxman will tend to look at cases where the contractor is in the main not using the bicycle for business journeys.
When a worker uses a bicycle, 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.
When travelling to work by bike, a journey to a contractor’s worksite might not be practical on a bicycle. In this case, they may instead 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 of the bike each tax year.
It may be the case that the company pays for the running costs (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.
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 13.8%. 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 their company the BIK elements. If they do this, the actual BIK that is reportable to HMRC will reduce to zero.
If you care about the environment and would like to keep fit, you may like to think about travelling to work by bike and buy a company bicycle, if this is practical.
You may also decide that you would like a company motorbike. Before your company buys this, it would be best to weigh up the tax costs first.
Link to Contractor Advice UK group on