23 Jul Tax benefits of company motorbikes
It’s good news! For a limited company, the entire cost of a motorbike purchase qualifies for capital allowances; for other motor vehicles the same doesn’t necessarily apply, so it could be an option worth considering.
In addition, there is no higher tax limit on what can be claimed in the company’s tax calculation for running costs.
Annual Investment Allowance (AIA)
With motorbikes, the full AIA tax relief is available at 100% of the cost. This doesn’t necessarily mean all the AIA can be claimed, as if there is some private use then the AIA would need to be reduced accordingly.
For instance, if the bike has a value of £3,000 and is used 25% for personal use then only £2,250 could be deducted from profits for tax purposes.
Claiming VAT back on a company motorbike
Also, all the VAT may be reclaimed on the purchase of a company motorbike, if the company is not operating on the Flat Rate Scheme.
If you are on the Flat Rate scheme, and, if the value of the bike is more than £2,000, then you can claim the VAT on your 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.
It is essential to keep a detailed log of the business mileage for all your journeys.
Please note too, that if VAT is claimed on purchase, then VAT will have to be charged on the motorbike if and when it is re-sold.
How does it affect an employee?
If the motorbike is purchased for an employee, there are tax implications.
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.
Tax on company motorbikes: An example
If a motorbike costs a total of £7,000, the benefit-in-kind to the employee will be £1,400 (£7,000 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.
If the running costs (insurance, maintenance etc) of the motorbike are paid by the company there is an additional benefit-in-kind of 20% of these annual costs.
Therefore, if the employee is a higher-rate taxpayer, and have a new motorbike costing £7,000, the extra tax they would pay would be £560 per annum. (£7,000 X 20% X 40%).
How does it affect an employer?
The company would also pay 13.8% Employers National Insurance on this benefit amount as declared on the P11D(b). This is payable by 22nd July after the end of the tax year.
Please also remember that the invoice must be in the company name, the motorbike should be under the company’s ownership (i.e. the log book in the company’s name), and, you will need a business insurance policy.
As a final point, it is also worth noting that 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.