Tax Brakes for Cyclists. Four tax breaks to encourage cycling. Yes thats right you can save tax when buying a bike.
Travelling expenses
Your employer can (if it chooses) pay you up to 20p per mile for cycling in
the course of your job, and you would not have to pay any tax or National
Insurance on the amount paid.
Allowable journeys will not include cycling to and from work, but
could include cycling between different sites, or visits away from your usual
place of work.
If your employer won't pay that much (or anything at all), you can still
claim tax relief at up to 20p per mile for all business mileage.
For instance, if you cycle 1,000 miles in the course of a year on business,
you could claim £200 from your employer, tax free.
If your employer won't pay anything at all, you could claim £200 tax relief
from the tax man. To claim the relief, write to your tax office at the end of
the tax year (5 April) and say you are claiming 'mileage allowance relief'. You
will need to be able to support your claim with a detailed record of the
journeys making up your claim. If you pay tax at the basic rate of 22%, you
will save tax of (£200 x 22%) £44.
If, say, your employer had paid you 10p per mile for your business travel by
bike, you could claim the balance of 10p per mile as mileage allowance relief.
Free parking
The provision of parking spaces for cycles is tax free
Free breakfasts
If an employer holds a designated ‘cycle to work day’ to promote cycling
instead of driving to work they can provide refreshments or a meal for employees
who cycled when they arrive at work. A maximum of six cyclist ‘breakfasts’ a
year per employee are exempt from tax and NICs.
Cut price bikes from your friendly employer
Yes! Unlikely as it may seem, the best place to look for a discount on a
new bike could be your own employer
A little known tax exemption allows employers to lend or hire cycles and
cycle safety equipment to employees without the employee incurring any charge
for tax or National Insurance Contributions (NICs). There is a condition that
the cycle is used 'mainly' for commuting to work, although you don't have to
keep records to prove it.
You might think that this is not very exciting news. But this exemption can
be implemented in a surprisingly tax efficient way that enables employees to
purchase cycles through a carefully designed scheme that can knock as much as
50% off the cost of a bike, and at the same time save your employer money.
Sound far fetched? This is how it works...
-
Choose a bike
Say you would like to buy a new bike costing £600.
-
Pay for the bike
Actually, your employer buys the bike, and you agree to accept a salary
sacrifice of, say, £200 per annum for three years - £600 in total. At the end
of the three years, you buy the bike from your employer for its residual value
to your employer, say, £50.
This is the clever bit.
Because you are accepting a salary sacrifice of £600, you save the tax and
NICs that you would otherwise have paid on the £600 that you have sacrificed.
If you pay tax at the basic rate, you save tax at 22%, plus NICs of as much
as 11% (less if you are contracted out of the state second pension, perhaps
because you are a member of your employer's pension scheme).
| Tax |
£600 x 22% |
£132 |
| NICs |
£600 x 11% |
£66 |
| |
|
|
| Total saving |
|
£198 |
-
How much did that cost?
A £600 bike just cost you (£600 salary sacrifice, plus £50 residual value,
less £198 tax and NICs) £452, a saving of almost 25%!
If your employer is VAT registered, and if you use the bike (even a tiny
bit) on business, your employer can recover the VAT on the bike. However, you
would have to pay VAT on the £50 residual value.
In that case, a bike costing £600 including VAT - £510 plus VAT - will cost
a basic rate taxpayer just £400 (£510 salary sacrifice, plus £58.75 residual
value (inc VAT), less £168 tax and NICs), a saving of 33% against the VAT
inclusive price of £600!
If you pay tax at 40%, the saving is even bigger.
Incidentally, you can include cycle safety equipment in the scheme, so a
new helmet and lights for the bike could be included in the package.
Why would my employer do that?
You may wonder why your employer would pay £600 up front for a new bike for
you, and only get the money back over three years.
The very good answer is that your employer can save as much tax as you!
This is how it works...
-
Pay for the bike
In addition to the £600 cost of the bike, the employer is also financing
the cost which you only repay over 3 years. Say the total cost is £650.
-
Savings for employer
Say your employer is a small but profitable company paying corporation tax
at 19%, and is VAT registered. Your employer will get tax relief (capital
allowances) on the cost of the bike, and will save employer's NICs on the
salary sacrifice that you agreed to:
| Capital
allowances |
£460 x
19% |
£87 |
| NICs |
£510 x
12.8% |
£65 |
| |
|
|
| Total
saving |
|
£152 |
Large profitable companies pay corporation tax at 30%. Individuals and
partnerships may pay tax at as much as 40%. The tax savings for such
employers are even greater!
-
How much did that cost?
The bike cost £560 (VAT exclusive cost of £510, plus £50 finance costs) and
you have paid your employer £560 in total by taking a salary sacrifice of £510
and purchasing the bike after 3 years for £50 plus VAT. Net cost to the
employer: £Nil.
But your employer has saved tax of £152. Your employer ends up £152 better
off, and you saved £198!
Article reproduced from http://www.leedscyclists.org.uk/
