UHY Hacker Young | Chartered Accountants

Two wheels are better than four

16 August 2018

With motorbike sales up 7% on 2017 figures, more people are turning to two wheels. Not only are two wheels considerably more fun than four, you can beat the congestion and reduce your commuting time.  Add to that the tax advantages, there has never been a better time to make the switch to two wheels.

If you have a company car, the taxable benefit is based upon the carbon dioxide emissions and the list price from new. As the benefit in kind percentage increases year on year, the company car is no longer tax efficient for the employer or employee.

The taxable benefit on a motorbike is calculated as twenty percent of the purchase price. Take for example a £20,000 car with emissions of 120g/km. This would result in a taxable benefit of £5,000. A motorbike costing £20,000 would result in a taxable benefit of £4,000. This is a tax saving of £400 per year for a higher rate taxpayer. The taxable benefit would be reduced for any day when the motorbike is used solely for business purposes. The lower taxable benefit will also result in a lower class 1A National Insurance bill for the employer.

Any accessory or running cost such as insurance or maintenance would result in a taxable benefit of 20% of the cost incurred.

From an employer’s perspective, company motorbikes are also more tax efficient. Capital allowances on cars will be given at 8% or 18%, unless you buy an electric car and can claim 100% first year allowances. However, as motorbikes are not classed as cars, they qualify for the annual investment allowance at 100%.

The recovery of VAT on a car is blocked unless the car is used 100% for business, such as a taxi or for driving instruction.  It is possible to re-claim the VAT on a motorbike.

If you are considering the switch, do not hesitate to contact me to discuss the tax implications.