March 9th, 2015 / Insight posted in The Sunday Times Business Doctor

Business Doctor: Best way of buying a bike through the firm

PI writes: I have a company of which I am the only employee. I want to buy a bike, which will cost £2,000 and use it to cycle to work. Can I put this through my business to reclaim the VAT? Should I use the cycle to work scheme?

The company can purchase the bike and, as long as it is VAT registered with no partial exemption, you can reclaim the VAT, writes Jon Dawson, partner at Kingston Smith LLP. On a bike with a retail value of £2,000, this amounts to £333. You can also buy any associated safety equipment through the company and reclaim the VAT.

The cycle to work scheme is useful if you have a number of employees and, rather than lending the bikes, they are hired to them. The hire charges are deducted from gross wages by way of a salary sacrifice, meaning they are paid from untaxed income, reducing the tax and national insurance for both the employee and company. If you reclaimed VAT when you purchased the bikes, you must charge VAT to your employees on the hire charges and pay it over to HM Revenue & Customs through your VAT return.

Bikes are exempt from benefit-in-kind charges when they are owned by the company and used mainly for work or journeys from your home to your office. If you are planning on using the bike substantially outside work, you will find that a benefit-in-kind charge arises and the company would need to complete a P11D form on the assessable value.

Alternatively, you may want to own the bike yourself, in which case the company could provide you with a loan. As long as your total loans from the company are under £10,000, no benefit-in-kind charge arises. However, buying the bike yourself would mean you cannot reclaim the VAT.