Does having a motorbike as a company vehicle sound like a great idea to you? Perhaps you would like the convenience and enjoyment of riding your motorbike, coupled with the time savings and what about the benefits of social distancing (no Covid 19 risk from a packed train!)?
But what about tax?
In simple terms it will probably be best to own your motorbike privately and charge your company the official mileage rates for business miles travelled. Currently the government allows companies to pay employees 24p per business mile to use their own private motorbikes for business. There is no upper limit for mileage so if you travelled 20,000 business miles in a tax year you could make a tax-free claim of £4,800. You would however have to bear the cost of the motor bike itself and all the running costs personally. There would be no VAT to reclaim although you could reclaim the VAT on the fuel element of the mileage rate.
The alternative is to buy the motorbike through your company. That way you could claim tax relief on the purchase price and running costs of the bike met by the company but you would potentially suffer a P11D benefit in kind if you could not argue that the motor bike was used 100% for business purposes.
The good points
Firstly let’s cover the benefits of a company motorbike. The rules for buying a motorbike are fairly straightforward. If you buy a company motorbike outright or on hire purchase the VAT can be recovered in full. The cost of the vehicle will attract a 100% deduction against profits as part of you annual investment allowance. If you buy the vehicle on lease the rules are different but you can still reclaim the VAT on lease payments and the lease rentals will be tax deductible. To claim annual investment allowances you must ensure that the motorbike is bought by the company with the invoice made out in the company name.
All your ongoing motorbike costs such as insurance, tax, fuel and repairs can be paid for by your company and where relevant any VAT recovered.
Motorcycle helmets can also be paid for by the business and most are in fact zero rated (so there is no VAT to pay) when they comply with one of the following standards:
- British Standard (BS) 6658:1985 (it will be marked with a British Standard ‘kitemark’); or
- UNECE Regulation 22.05 (it will be marked with a UN ‘E’ mark – the first two digits of the approval number will be ‘05’).
Motorbike protective clothing can also been claimed provided it is used wholly and exclusively for business purposes. Again the VAT can be recovered.
The bad points
The sting however comes from the fact that HMRC will deem that the provision of a motor bike and all the related costs constitutes a benefit in kind. This is equivalent to 20% of the cost of the motorbike and accessories (inclusive of VAT) each year plus all the annual running costs unless it is used 100% for business purposes- i.e. if you use your motorbike just once for a private trip then per the taxman the company has provided you with a benefit in kind the value of which will be taxable on you.
Proving 100% business use can be tricky. If your main place of work is your home, you have to travel regularly to site and you only use your motorbike for this purpose then this would be fine. You would however need evidence such as a mileage log book and be prepared to argue vigorously with the taxman! Commuting to site is not usually considered business mileage unless you can demonstrate that these are temporary places of work.
Let’s take an example to show how the benefits in kind are calculated.
In the last year the Royal Enfield Interceptor INT 650 Twin has proven to be an incredibly popular motorbike due to its stylish retro looks and keen pricings.
Typically the Royal Enfield Interceptor INT 650 Twin will cost about £5,700.
This will give rise to a benefit in kind of £1,140 a year. The benefit is 20% of the gross cost of the motorbike – i.e. with VAT not net. For a basic rate taxpayer that’s a tax liability of just £228 per year (higher rate taxpayer £456). This benefit in kind will remain the same every year you are provided this motorbike through your company so if the motorbike depreciates in value it is a good idea to change the motorbike after a few years or alternatively sell the bike to yourself at market value (don’t forget to account for VAT if you are VAT registered).
What about running costs? Typically the Royal Enfield Interceptor INT 650 Twin does about 60 miles per gallon. If you do 10,000 miles (business and private) the fuels costs will work out at roughly £850. Servicing costs will probably be about £300 so overall running costs will be around £1,500 per year. Unfortunately the total expense incurred by the company has to be treated as a benefit in kind. If costs are paid privately they can be ignored. This potentially will give a further taxable benefit of £1,500 and tax bill of £300 for a basic rate tax payer and £600 for a higher rate tax payer. Whilst on the face of it this might not look beneficial you can of course recover the VAT on running expenses.
The company would also need to pay 13.8% Employers Class 1A National Insurance on the benefit in kind as declared on the P11D(b).
If you do a lot of business mileage then it is highly likely that it will be better to buy the motorbike privately and charge the company using the approved mileage rate of 24p per business mile. Please also be careful in calculating your business mileage. As stated previously remember that travel costs from home to a permanent place of work is classed as commuting and therefore no business mileage can be claimed.
If you purchase the bike as a sole trader then there will be no benefits in kind. You will be able to claim most of the reliefs available but you will need to add back any element of private use. If there is any private use you will only be able to claim capital allowances less the private use rather than the potential 100% annual investment allowance.
The calculations are complicated. If you can argue 100% business use then for company directors a company motorbike is a great way to finance a new bike with a lot of tax benefits claimable up front. However if you have to suffer benefit tax then the figures get tricky and it may be easier to simply own the motorbike privately and charge the mileage. In practice when you run the figures the good points usually equalize the bad points from a tax perspective. However if you have excess cash funds in the company then this could still be a neat way to proceed. We recommend however that you check the figures with your professional adviser to work out what will be best for you.
At Friend & Grant we are always on the lookout for great ways for business owners to take advantage of the many benefits available from operating your own limited company. To find out more about how we can help you save tax why not contact us to arrange a free initial meeting.
The content in this blog is correct as at 18/01/2021. See terms and conditions.