Cycle to Work - one-man company

[nosmarbaj]

Hi - one for any tax accountants out there ...

I am an IT contractor with my own limited company of which I am the sole director and employee. I do my own accounts. I'm thinking of buying a new bike, and if I can save some tax by using the Cycle to Work scheme that's just fine by me.

Am I right in believing that my company can buy a bicycle and provide it to its employee (me), with no tax liability?
I would expect it would be a capital purchase by the company, depreciated over (say) 3 years, after which I would buy it from my company for a fair market price (there are HMRC guidelines available as to what is a fair price).
The company would provide it as a (non-taxable) benefit, therefore no loan involved, therefore no upper price limit of £1K.

Is there anything wrong with this scheme? (I know I could pay an accountant for advice, but IME those that deal with small companies generally don't know about Cycle to Work, and anyway the fees would eat up most of the potential tax saving.)

Thanks

[whoof]

The size of the company does not matter but the employee must receive a salary under PAYE.
http://www.cyclescheme.co.uk/employers/employer-faqs

[nosmarbaj]

Hmm - I do pay myself under PAYE, but I don't think it's relevant as there is no salary sacrifice involved.

The salary sacrifice schemes mean the employer saves some NI and the employee saves some income tax and NI, while reimbursing the employer. So it costs the employee something, but less than the after-tax amount, and it costs the employer nothing (and indeed they gain a little). A salary sacrifice clearly requires there to be a salary in the first place.

But I don't need to bother with that because my company just loans me the bike with no requirement for reimbursement, and such a loan is a non-taxable benefit (unlike, for example, the loan of a company car). Other companies could do the same but the company (ie its shareholders) are then paying for a benefit to the employees. As I am the only shareholder, I can decide I am happy with that arrangement .

The main stumbling block may be the requirement that the cycle be used at least 50% for work purposes (even though there is no check on that).

[[XAP]Bob]

The company can just decide to buy a bike can't it?

It doesn't need to limit it to 3 years (although that is a likely depreciation figure) - it supplies that bike for use by any of it's employees, just as the (larger) company I am with at the moment provides sofas and a pool table in the breakout room.

[nosmarbaj]

Yes, I think that's right. But I think if the cycle is not used mainly (i.e. >=50%) for business purposes, the loan of it is theoretically a taxable benefit, although how that would be quantified is anyone's guess.

[neilob]

I was in a similar position (one man band, consultant, limited company) and just bought a bike. I reclaimed the VAT immediately because the bike is an asset of the company and it was depreciated over (I think) three years. My accountant was happy with the arrangement so it's clearly not dodgy although there obviously has to be some evidence trail that you actually use the bike to (for instance) ride to the station, go to the post office, collect stationary, meet clients etc etc. The advantage is that, unlike Bike to Work, you aren't limited to £1000 but I guess a DI2-equipped Pinarello Dogma at £4000 may raise some eyebrows at HMRC.

[whoof]

I was in a similar position (one man band, consultant, limited company) and just bought a bike. I reclaimed the VAT immediately because the bike is an asset of the company and it was depreciated over (I think) three years. My accountant was happy with the arrangement so it's clearly not dodgy although there obviously has to be some evidence trail that you actually use the bike to (for instance) ride to the station, go to the post office, collect stationary, meet clients etc etc. The advantage is that, unlike Bike to Work, you aren't limited to £1000 but I guess a DI2-equipped Pinarello Dogma at £4000 may raise some eyebrows at HMRC.

With reference to claiming back the VAT it would depend upon what your business was. Many years ago I worked in an accountants and completed many VAT returns for clients. A B&B tried to claim for a bike and a pair of ear rings. The B&B owners arguement was the bike was needed to collect eggs for the breakfasts at the bottom of their field and the ear rings were part of the wife's 'uniform' when serving dinner. These were both turned down flat by the VAT man.
Unless you own a bike hire or rickshaw company I would query the validity of claiming the bike was a company asset

[mjr]

Unless you own a bike hire or rickshaw company I would query the validity of claiming the bike was a company asset

And unless it's a chauffeur service, a company cannot claim a car is an asset?

I wonder if buying a bike and reclaiming its cost at 20p/mile (as in https://www.gov.uk/government/publicati ... allowances ) is worthwhile.

Also, I think mileage of 40p/mile is seen as a nice little earner by many workers. If the government was serious about cutting pollution, they'd harmonise the rate to 40p/mile no matter whether car, motorcycle or pedal cycle.

[thidwick]

Unless you own a bike hire or rickshaw company I would query the validity of claiming the bike was a company asset

And unless it's a chauffeur service, a company cannot claim a car is an asset?

I wonder if buying a bike and reclaiming its cost at 20p/mile (as in https://www.gov.uk/government/publicati ... allowances ) is worthwhile.

Also, I think mileage of 40p/mile is seen as a nice little earner by many workers. If the government was serious about cutting pollution, they'd harmonise the rate to 40p/mile no matter whether car, motorcycle or pedal cycle.

....or walking?

[TrevA]

My company only pays 26p a mile for cars but pays 20p per mile for cycling. Given that petrol costs about 15p per mile, cycling is clearly the winner. However, our offices are well spread out and even the nearest ones are 40-50 miles away, which makes for a challenging ride. I compromise by cycling half way and then catching the train.

A club mate of mine cycled from Nottingham to Manchester (through the Peak District, on 72" fixed ) for a meeting. He left at 4.45am arriving about 9.30 and set off home at 4.00 getting home around 8.30.

[fastpedaller]

Also, I think mileage of 40p/mile is seen as a nice little earner by many workers. If the government was serious about cutting pollution, they'd harmonise the rate to 40p/mile no matter whether car, motorcycle or pedal cycle.

I'm puzzled as to why they would view 40p a mile as a nice little earner (unless they haven't worked out the costs). For most vehicles, the variable costs (ie repairs, petrol. oil and tyres) come to more than this. Factoring the added insurance cost which is usually a fixed cost, but can be additional cost if mileage is limited on the policy, or (to comply with the law) business cover is added, can mean that the 40p allowance is inadequate. Correct me if I'm wrong, but I recall it's now 45p a mile.

I agree that it should be the same for other modes of transport as for a bike (to act as an incentive), but HMRC view it as an item of expense, so you aren't meant to get extra (above your costs).

years ago I worked at a set location, and was asked (told) to go to another site to be part of a stocktake. Pointed out that I didn't have (and couldn't be expected to pay for) business use on my insurance. As the company refused to pay this the manager suggested I just turn up for work at the other site, and if anything happened make a claim as if it was private use! I told him it was illegal, and If a works truck drove into my car it would be a bit tricky. My solution...I'd use my bike. They said no mileage allowance would be given, and I should use my car anyway as it would take me longer to get back to base later. (what nice people, obviously non-cyclist). I attended (by bike) and, up for the challenge, left at the same time as the others, and with furious pedalling and a carefully chosen route arrived back at base (15 miles away) before the motorised staff! Next stock take I again asked the manager for the mileage rate and was refused, so I put it to him that the other staff should use bikes to a) get back quicker and b)save the company money. This was viewed as expected. I did the task again, and on the way back to base I chose a particularly lovely training route, taking 2 hours to return to base and wasn't challenged

[Grandad]

When working in Wolverhampton I had to attend a number of week long courses in London. I cycled to these on the preceding Sunday, staying the night at my parents house in the suburbs. Reversed the procedure to ride home Saturday and pocketed. the train fare.

One year it was a 3 week course so stayed with parents on the intermediate weekends. Riding down in February it was warm enough not to need gloves but on the return in March cold enough to have ice floating on the River Thames.

[irc]

I'm puzzled as to why they would view 40p a mile as a nice little earner (unless they haven't worked out the costs). For most vehicles, the variable costs (ie repairs, petrol. oil and tyres) come to more than this.

No they don't. A quick estimate of mine was 15p per mile. The AA suggest 18-29p per mile running costs depending on price of car. So as many fixed cost would be the same whether the owner used the car for business or not the owner of a cheap car may indeed be earning something from a 40p per mile claim.

http://www.theaa.com/resources/Document ... ol2014.pdf

[Cherwell]

To have a bike as a capital purchase for the company you would need to be able to argue that it is a legitimate business expense, and you should only claim back that portion which is for business use. As with a company van, private mileage has to be deducted and only business mileage is allowed tax purposes.

Alternatively, you could just put it through your books and see if you get away with it. I’ve known people put a new lawnmower through their business accounts and get away with it even though their business does not have a lawn. This of course is an abuse of the system and runs the risk of being caught out by the authorities for fiddling the company accounts.

[Bonefishblues]

My company only pays 26p a mile for cars but pays 20p per mile for cycling. Given that petrol costs about 15p per mile, cycling is clearly the winner.

Albeit the car driver can claim relief on the difference between the company rate paid and the HMRC rate.