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Travel expenses 4: Travelling and subsistence claims for contractors


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Contractors’ guide to claiming motorbike, bicycle & van expenses

Do you do your bit for the environment by cycling to work? Or do you commute by van or motorbike?

In this eBrief, Intouch Accounting, the personal online accountant for contractors and freelancers, look at how to claim expenses when one of these alternatives to the car is used for travelling to work or as part of any business journey. We also consider when the vehicle is owned personally, or provided by your company

In our business journeys eBrief we described in some detail when a journey is treated as business, and when travelling from home to your client site ceases to count as a business journey. These same rules apply whenever a motorbike, bicycle or van is used.

Motorbikes

If you are thinking of buying a motorbike (or already own one) and intend to use it for business journeys, there are tax consequences you need to be aware of in order to make an advantageous claim and avoid the pitfalls.

What to claim?

  • When using your privately owned motorbike for a business journey you can claim a fixed amount per business mile under the Approved Mileage Allowance Payment scheme. The claim is made in much the same way as you would claim mileage for privately owned cars.
  • The approved mileage rate is lower than for cars, at only 24p per mile. There is, however, no upper mileage band of 10,000 miles (as exists for cars), so you can apply this rate to all business mileage undertaken.
  • A motorbike is regarded by HM Revenue & Customs (HMRC) as a separate type of vehicle to a car meaning that the miles clocked up on your motorbike don’t count towards the 10,000 mile threshold applied to your car, and after which, the lower rate per mile would need to be applied.
  • If the company pays you less than 24p per mile for your motorbike, you can claim the difference up to 24p via your personal tax return. But, if more than the approved rate (of 24p) is paid by the company, the excess is taxable on you and should normally be reported to HMRC on Form P11D. The company also must pay Employers’ National Insurance (NI) contributions on the amount over 24p.
  • If you have another employee, and you take them pillion on a business trip, unlike a car you can’t claim any additional passenger allowance.

Taxable benefits or not?

If your company pays any expenses in relation to the privately owned motorbike, such as insurance, road tax or general repairs, you have a choice as to whether those payments are taxable benefits or not.

  • You can reimburse the entire cost to the company, treat the amount as a loan to be repaid later or accept and suffer a taxable Benefit in Kind (BIK).
  • If the payments are left as a Benefit in Kind, the company can reclaim the VAT paid, provided that the invoice is in the company name (unless you use the flat rate scheme).
  • The company can also obtain corporation tax relief against profits; but then you are taxed on the VAT inclusive cost incurred by the company as income at your highest personal rate of income tax. The company must also pay Employers National Insurance contributions.
  • If you contribute some money towards the cost, you can reduce the value of the benefit on which you pay Income Tax. However, you might like the idea of the company buying, or even hiring, the motorbike and paying for all the costs associated with it including any accessories and running costs.

What about company owned motorbikes?

We haven’t touched upon company owned vehicles too much so far; but, unlike cars, the taxation of company owned motorbikes is relatively straightforward.

  • Every fiscal year you will be personally taxed as a Benefit in Kind on 20% of the VAT inclusive cost to the company of purchasing the motorbike and any accessories supplied at the time of purchasing the bike. If the company hires the bike, then it is the full VAT inclusive hire charges paid that are treated as the Benefit in Kind.
  • In the year of purchase and disposal, the 20% value will be time apportioned and you can reduce the taxable amount if you reimburse the company on a £1 for £1 basis.
  • You are also taxed on the full cost, including VAT, of any other costs arising from owning the motorbike such as repairs, insurance, or accessories provided after the original acquisition.

The amounts are added to your personal income for the tax year and taxed as income at your highest effective rate of income tax. The company must also report the Benefit in Kind under the P11D system and pay Employers’ National Insurance contributions once a year in July

But what if I use my motorbike for both business and private journeys?

If this is the case then you must keep a record of all journeys in order that a proportionate deduction can be claimed for the business use element; also if you make any personal contribution towards the cost this can be deducted.

Where the motorbike is used for both personal and business purposes the value of the expense, less any private contribution, is reported on the P11D before any deduction for business use. The benefit reported is then adjusted by you claiming a deduction for the business element on your self-assessment tax form.

The company will get:

  • Tax relief for the capital cost under the annual investment allowance rules (provided within the annual threshold, or writing down allowance on any balance), and
  • Tax relief for the expenses incurred (less any private contribution paid by you).

If you are subject to IR35, then the value of the taxable Benefit in Kind is allowed as a deduction in the deemed salary calculation

If the company decides to sell or make a permanent gift of the motorbike to you, you will be taxed on the transfer of the asset. The value of the asset treated as a Benefit in Kind depends on whether the asset has been used while owned by the company. If it’s completely new, i.e. unused, the Benefit in Kind is the full cost (or market value if higher); but if it’s been used and you have or will suffer a Benefit in Kind on its use. The Benefit in Kind on transferring the motorbike to you is the higher of its market value when transferred to you or the original market value when first provided, less amounts previously treated as a Benefit in Kind. The value used is then reduced by any contribution you have made towards its purchase from the company. But, don’t forget, VAT would apply to the sale of a motorbike. Therefore, if you sell the bike to yourself, the company must charge you VAT.

A simple example is as follows:

The company buys a motorbike for £10,000 including VAT on 1 June 2014. After a month it buys a satellite GPS system for £600 plus VAT and incurs £1,850 including VAT of £175 during the year to 5 April 2015 following. The company applies the flat rate VAT scheme. The motorbike is used 20% for business and 80% for private use. A private contribution of £200 is made in February 2015.

The company

The motorbike costs £10,000 but the company recovers the VAT so the net cost is £8,333. Even though you are using the flat rate you can recover this VAT as it qualifies under the rules for capital assets. The company will claim the full £8,333 against its corporation tax as this falls within the Annual Investment Allowance for capital allowances purposes giving a 100% tax deduction in the year of purchase.

The overall tax saving on the purchase, compared with a private purchase, is the VAT of £1,667 plus the Corporation Tax saved of £1,667 a total reduction of £3,334. The company can’t claim back VAT for the GPS item or the running costs under the flat rate VAT scheme. The total cost of the GPS and the running costs, less the private contribution of £200, are an allowable deduction of £2,370 against the profits increasing the tax relief at 20% by £474. As the motorbike is available for private use the company must account for Class 1A National Insurance contributions.

Class 1A National Insurance Contributions would be £10,000 x 20% = £2,000 x 10/12 = £1,667 + £2,370 = £4,037 x 13.8% = £557.06, (the 2014/2015 cost value is partly time apportioned as the period provided is only 10 months out of the 12). The National Insurance cost is an allowable deduction itself and reduces the corporation tax by 20% of the National Insurance liability paid.

Personal

The personal cost will be a Benefit in Kind of £4,037. However as 20% is for business use you would claim a deduction from this amount of £4,037 x 20% = £807, leaving a taxable Benefit in Kind of £3,230 charged to income tax at your highest rate and the tax is payable as part of your self-assessment tax calculations. Assuming a 40% tax band the tax cost for its private use is £1,292.

Subsequent gift of the motorbike to you

If the motorbike were given to you at the end of the tax year, assuming its value then is £6,000 plus VAT, equalling a market value of £7,200. The value of the benefit would be the greater of £7,200 and £10,000 less the Benefit in Kind assessed.

The VAT on the “sale” would be accounted for on the normal VAT basis and the full £1,200 VAT payable on the next VAT Return.

Bicycles

Surprisingly, if you use your own bicycle for part of any business journey, you can claim a rate per mile in exactly the same way as you would with other vehicles. There are no particular conditions, other than maintaining a record of the trip in the same way as you would any other mileage claim

The rate to claim is 20p per mile, and there no limit to the number of miles that could be claimed. And, you don’t need to use a bicycle for the whole journey, so if you decide to cycle to the station to catch a train to London that’s fine; you still claim for the miles cycled from home to the station and back again.

But, what if you don’t own a bicycle or need to buy a replacement; perhaps treat yourself to a new mountain bike. Well you could buy it yourself, but to do so means paying for something out of income that’s already been taxed. So, why not get the company to buy it for you:

  • The company can buy a bicycle and all the necessary accessories and safety equipment and lend it to you.
  • The company claims back the VAT paid (not under the flat rate scheme) on the bicycle and accessories – there’s no VAT on the safety equipment.
  • The company claims the balance as a deduction against its corporation tax, as a capital allowance or deduction for the minor items.

It’s one of those rare occasions when HMRC doesn’t tax you on the benefit derived from having the use of a company owned asset; you don’t even need to report the fact on the P11D.

This is because of an official government scheme called the “Cycle to Work Scheme”. Interestingly, there are no financial limits on the cost of the bicycle and accessories lent to you, and the exemption also covers the provision of a voucher for hiring bicycles and equipment.

The bicycle rate is 20p per mile, and there no limit to the number of miles that could be claimed. And, if you decide to cycle to the station to catch a train that’s fine; you still claim for the miles cycled from home to the station and back again.

There are a couple of basic rules of course

  • Firstly, the bicycles or equipment are available generally to all your employees (this does not mean that every employee has to be provided with a bicycle or equipment, just that the offer of bicycles or equipment is open to them all), and
  • Secondly, it’s mainly used (meaning more than 50%) for either cycling to work (one time this is treated as acceptable), or as part of any other business journey – as we’ve previously defined.

You are not expected to keep detailed records of time spent cycling or miles travelled for the purpose of this ‘main use’ test. HMRC usually accepts that the test is satisfied, unless there is clear evidence to the contrary. Cyclists’ safety equipment is not defined and a common sense approach should be taken when deciding what falls within this description.

Examples of items that count as cyclists’ safety equipment include cycle helmets, horns, lights, child safety seats and reflective clothing. But, don’t go buying expensive cycle computers and waterproof clothing that’s not reflective, as these are likely to be taxed. If the bike is given to the employee the normal rules apply and remember that VAT is chargeable by your company on the value sold to you.

Vans

A few years back it became quite common for contractors to use their company to buy vans as an alternative to a company car. Some manufacturers created “double cab” vans with 4 doors and rather comfortable interiors; so, if you didn’t mind driving around in a van, they represented an alternative with a less onerous tax cost compared to a company car.

Changes in the law have now, however, made this much less attractive. But there are still some interesting and quite substantial differences between the tax treatments if your company provides you with a van, compared with it providing a car. We cover this more in our eBrief company cars.

What is the definition of a van?

A Van means a vehicle constructed primarily for the conveyance of goods or burden of any description (this does not include people), with a design weight not exceeding 3,500 kilograms. With effect from 6 April 2002, vehicles commonly known as ‘double cab pick-ups’ are classified as vans if they have a payload of 1,000kg or more.

What is the Benefit in Kind charge?

The Benefit in Kind charge is £Nil, if both the following requirements are satisfied throughout the period the van is available to the employee:

  • The van must only be available to the employee for business travel and commuting. It must not, in fact, be used for any other private purpose, except to an insignificant extent; and
  • The van must be available to the employee mainly for use for the employee’s business travel.

If both these requirements are not met, there is a fixed benefit in kind charge of 30%. If the van does not emit CO2, the fixed charge for 2010–11 to 2014–15 inclusive is £nil

Private use is to be considered insignificant, if it is:

  • Insignificant in quantity (that is, a few days at most).
  • Insignificant in quality (for example, a week’s exclusive private use is clearly not insignificant), Intermittent and irregular.

Examples of insignificant use

  • Takes an old mattress or other rubbish to the tip once or twice a year.
  • Regularly makes a slight detour to stop at a newsagent on the way to work.
  • Calls at the dentist on his way home.

Examples of significant use

  • Uses the van to do the supermarket shopping each week.
  • Takes the van away on a week’s holiday.
  • Uses the van outside of work for social activities.

Are there any reductions in the Benefit in Kind charge?

The charge is reduced for the following reasons, and in this order, when:

  • The van is unavailable
  • The van is shared
  • Payments are made for private use of the van.

The provision of fuel

A fuel benefit charge is incurred where either the company incurs the cost of the fuel for the van, including reimbursing you for the direct cost of fuel incurred by you. From 2010–11, the charge is fixed at £581. Reducing the fuel benefit charges to nil.

The fuel benefit charge is nil, whenever fuel is provided and

  • You repay to the company the whole cost of fuel for private motoring, or
  • Fuel is made available only for business travel.

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