22nd September 2021
Travelling by bike makes loads of sense. If you are thinking about buying a bike or dusting off the one in the garage and increase your fitness, go for it. The good news is that you can make some savings for your limited company.
First things first, the 24-month rule
You are only allowed to claim for travel & subsistence related expenses for temporary work locations. With the 24 month rule, HMRC set out to stop people from claiming travel to permanent workplaces.
Per the rule, your primary work location (where you spend more than 40% of your time) is only temporary until you become aware that you’ll be working at the site for more than 24 months.
The Cycle Scheme
The Cycle Scheme was designed for large corporations to provide their employees easy access to a bicycle and pay it off in instalments. Payments are deducted from the pre-tax salary, so the employee saves some tax and NI in the process as well.
Why is this not for the limited company contractor? First of all, the chances are that your salary is set too low (for tax efficiency) for any savings to be made; secondly, the admin involved just isn’t worth the effort.
Thankfully there are a couple of other options available: buying a bike through your limited company or using your own bike and claim mileage.
Buying a bike
Your company can purchase a bicycle and claim tax relief on the full cost in the year of purchase. Yes, you heard it right, you can pay for a bike with the company card, and your accountant will classify it as a company asset. Better yet, kit out your bike with safety gear, and these will all be treated as part of the bicycle. Maintenance and service costs will also be claimable through the business.
You not only avoid paying for these with your own funds. The value of the bike and related expenses will also reduce corporation tax by 19%.
The restriction is that the bike must be used mainly for commuting. It is also worth mentioning that the bike is the property of the company, so selling or disposing of it, need to happen through the company accounts.
Using your own bike
You don’t have to buy a bike if you already have one that you are happy to use for commuting. Although the company cannot save tax on the purchase of the bike, HMRC’s approved mileage rate of 20p is available for you to claim for each mile, which is tax-deductible. The rate was designed to cover the cost of maintaining the bike any associated costs.
There aren’t any real restrictions (unless you are caught by the 24-month rule), with this arrangement. The bike remains your property, and you can sell it privately without having to account for the proceeds in the accounts.
The good news is that you can carry your bike on the roof of your car, park up and continue your journey on two wheels; you can claim mileage for your car as well as the bike. Same if you only cycle to the train station, expense mileage to here and the onward train journey as well.
Regardless of the choice of travel method, we recommend discussing it with your accountant before making any purchases. They will advise you with consideration of your individual circumstances, which may lead to further tax saving or help you avoid a potential penalty.
If you are interested in our services, we are happy to answer any questions so feel free to contact us at 0800 917 9100 or e-mail us at firstname.lastname@example.org