Whether it’s jetting through the rush-hour traffic, cutting down on fuel costs or just a greater sense of fun and adventure; these may be some of the reasons that people opt to ride a motorbike. However, they are also a tax efficient option if you or your employees are choosing a company vehicle.
For an individual, choosing a company motorcycle will mean that the benefit in kind values are generally lower than if a company car had been chosen, and as such they will attract lower additional tax charges.
Purchasing a motorbike
With motorbikes, the full Annual Investment Allowance (AIA) is available, providing tax relief for the full purchase cost. However, if some private usage of a motorbike is planned, the claim would need to be reduced accordingly.
The full amount of the input VAT may be reclaimed on the purchase of a company motorbike, if the business is not operating on the Flat Rate Scheme. If the business is on the Flat Rate scheme, and, if the value of the bike is more than £2,000, then it can claim the VAT on its VAT return provided the bike is going to be used wholly and exclusively for business. If the motorbike is to be used for both private and business journeys then only a business proportion of the VAT can be reclaimed.
If VAT is reclaimed on purchase, then VAT will have to be charged on the motorbike if and when it is re-sold.
Leasing a motorbike
The leasing cost will be fully deductible for Corporation Tax/Income Tax and the input VAT can be recovered in full.
Benefit in kind rules
If the motorbike is purchased or leased for an employee, there are tax implications for the employee and National Insurance implications for the employer.
The employee is taxed as receiving a benefit-in-kind and will pay tax at their highest rate on the benefit-in-kind value, as it’s available for both business and private use. This will be reported on the P11d every tax year.
The benefit-in-kind value of the motorbike is calculated as 20% of the total cost (including VAT) of the motorbike. This is apportioned where the motorbike is only available for part of a year, however, the tax charge continues to be payable for as long as the motorbike is made available.
If the running costs (insurance, maintenance etc) of the motorbike are also paid by the company there is an additional benefit-in-kind of 20% of these annual costs.
However, there is no fuel benefit charge for motorbikes.
The company would also pay 13.8% Employers National Insurance on the total benefit in kind amount as declared on the P11D(b). This is payable by 22nd July after the end of the tax year.
If a motorbike costs a total of £7,000, the benefit-in-kind to the employee will be £1,400 (£7,000 X 20%). If the running costs amount to an additional £1,000, the extra benefit-in-kind to the employee will be £200 (£1,000 X 20%).
This is apportioned where the motorbike is only available for part of a year, however, the tax charge continues to be payable for as long as the motorbike is made available.
Based on the above, the total benefit in kind is £1,400 + £200 = £1,600. If the relevant employee is a higher rate tax payer the extra tax they would pay would be £640 per annum. (£1,600 X 40%). If they are a basic rate taxpayer, then the extra tax due would be just £320.
The company would also pay 13.8% Employers National Insurance on this benefit amount as declared on the P11D(b). This would be £220.80
Use of own motorbike
It is generally more tax efficient for an employee to use a personal motorbike and claim back business mileage from the company at the HMRC approved rates, currently 24p per mile as this way there is no benefit-in-kind charge. There is also no mileage restriction applied to business mileage on a motorbike.
SRC-Time are one of the South East’s leading accountancy firms in advising the self-employed and partnerships in all aspects of their tax affairs and we are able to assist in any issue raised above.
Our expert team is available to provide you with advice and can be contacted on 01273 326 556 or you can drop us an email at firstname.lastname@example.org or speak with an account manager to get any process started.