Company bike for a director

[Geoff Lane]

I'm a director of my own company which could be classed as a PSC (personal
services company) because its main product is my time and expertise. Thus I
have to worry about IR35 and the new MSC legislation. I've recently
returned to cycling, I'm doing just over fifty miles a week and extending
the distance each month, and my current bike is only one step up from a
BSO. I feel that I've outgrown this bike and would love to upgrade to
something like a Specialized Tricross Sport or Dawes Galaxy. Unfortunately,
funds are tight and I could only afford about £400 - just over half the
cost of either bike - from taxed income, which equates to just over £700
pre-tax.

Now my company has sufficient corporation tax "credit" (i.e. losses carried
forward from previous years) that it won't cost the company anything in tax
should the company buy the bike, but I'm worried about the personal tax
situation. Since I have to pay 22% income tax, 12.8% employer's NI, and 11%
employee's NI on anything I transfer to my personal account from the
business via PAYE, it will cost me a lot more (more than I can afford) if I
pay for the bike from money from which tax and NI has been deducted.

I work mainly from home and there is no opportunity to use the bike for
commuting (and this would be obvious at the next HMRC compliance visit) so
perhaps Cyclescheme won't fit the bill. I'm looking for advice on the most
tax efficient way of getting a new bike.

Any ideas?

Thanks in advance,

--
Geoff

 

[Nick Kew]

On 11 Apr 2007 19:29:11 GMT
Geoff Lane <[email protected]> wrote:


> I work mainly from home and there is no opportunity to use the bike
> for commuting (and this would be obvious at the next HMRC compliance
> visit) so perhaps Cyclescheme won't fit the bill. I'm looking for
> advice on the most tax efficient way of getting a new bike.

FWIW, I'm a director of my own company and work from home.
I'm a long way from having to worry about IR35 (and wtf is
"the new MSC legislation"?). But like you, my income comes
mostly from consultancy, as my other activities are not
profitable.

I have a company bike, which is a folder. Its primary purpose
is to be able to come with me on the train/etc for business
travel, but it serves my personal use on occasion too.

My financial controller deals with the Red Tape, but IIRC
this goes back to Gordon's first budget, when he declared
company bikes should NOT be taxable as a benefit-in-kind.

--
not me guv

"I'm able-bodied. Why should I want a car?"

 

[Mark Thompson]

> Any ideas?

Dunno, but the tricross is an amazing bike. There're 4 bikes (out of just
over 200) in 'my' shop that I rave about, and if I could only have one,
that would be it.

 

[Stuart Millington]

On 11 Apr 2007 19:29:11 GMT, Geoff Lane <[email protected]>
wrote:

>I'm a director of my own company which could be classed as a PSC (personal
>services company) because its main product is my time and expertise. Thus I
>have to worry about IR35 and the new MSC legislation. I've recently
....
>I work mainly from home and there is no opportunity to use the bike for
>commuting (and this would be obvious at the next HMRC compliance visit) so

Whilst I despise IR35 for going way, way, way, OTT it does seem -
sorry Geoff - that this is the sort of abuse it was meant to stop.

This is, from what you've said, a bike for personal use that you want
the company to pay for pre-tax, NI, etc.? As such, there should not be
a way around it IMO. The rest of us have to pay tax, NI, etc. then pay
for things that we want + vat, why should a "1 man band" company
(that's meant to be descriptive, not mean, sorry) be exempt from taxes
that every other PAYE employee has to pay? There are very major flaws
in IR35, but I don't see this scenario as one of them.

On a less antagonistic note, can you find any clients a few miles away
from base you could "need to visit" on occasions? Or a few miles away
from their local railway stations? Either way you could, legitimately,
use your bike to travel to them from the office/station?

 

[BIG_ONE]

Geoff Lane <[email protected]> wrote:

>I'm looking for advice on the most tax efficient way of getting a new bike.

why does it have to be new ?

>Any ideas?

pay the tax

 

[Geoff Lane]

Stuart Millington <[email protected]> wrote in
news:[email protected]:

> Whilst I despise IR35 for going way, way, way, OTT it does seem -
> sorry Geoff - that this is the sort of abuse it was meant to stop.

Unfortunately, IR35 prevents me from offsetting some legitimate business
expenses against tax. This is because those expenses are "general" and
cannot be directly attributed to a single contract, and so are included
in the "deemed payment" under IR35 rules. Currently, the company has
"losses" of over ten grand carried forward because of this, all business
expenses on things like computers, software, and training costs. Because
this is "deemed payment", personal tax and both sorts of NI have already
been (IMO unfairly) levied on this money. I've paid the tax but haven't
had the money and it seems fair to me to redress the balance just a
little - but YMMV.

>
> This is, from what you've said, a bike for personal use that you want
> the company to pay for pre-tax, NI, etc.? As such, there should not be
> a way around it IMO. The rest of us have to pay tax, NI, etc. then pay
> for things that we want + vat, why should a "1 man band" company
> (that's meant to be descriptive, not mean, sorry) be exempt from taxes
> that every other PAYE employee has to pay? There are very major flaws
> in IR35, but I don't see this scenario as one of them.

FWIW, I've seen evidence of abuse of the "Bike to Work" scheme. For
example, in one case the employee concerned commutes about three miles
each way when he feels like it using an old hack while the rather swish
machine he got under the scheme is only used for recreation, often for
over a hundred miles in a week. Now, that's tantamount to fraud and
certainly not what I'm trying to do.

All I asked for was advice on the most tax efficient (legal) way of
obtaining a new bike and I set out the scenario in which I find myself. I
did this in the hope that someone might know of a legitimate way whereby
I could obtain the bike I want while handing over a little less of my
hard-earned cash to Greedy Gordon! Note that I excluded Cyclescheme in my
original post, so I'm not trying to defraud the Exchequer in the way some
employees seem to do! FWIW, there are many tax breaks that directors
can't enjoy. I suspect Cyclescheme is one of these but since I've already
excluded that I haven't investigated further.

>
> On a less antagonistic note, can you find any clients a few miles away
> from base you could "need to visit" on occasions? Or a few miles away
> from their local railway stations? Either way you could, legitimately,
> use your bike to travel to them from the office/station?

Unfortunately, I live hundreds or even thousands of miles from nearly all
my clients and some I've never visited (mainly the ones on the other side
of the big pond). I've thought of a few ways to get the bike:

- Company rents the bike to me for a nominal fee
- Company transfers the bike as a capital asset
- Client donates the bike as sponsorship for a charity ride

I suspect there are pros and cons to each and that there might be a more
tax-effient way somewhere.

Ironically, my productivity has increased markedly because of my better
level of fitness from cycling and it's probably more effective at
improving "employee health" than gym membership. Of course, as a
director, I wouldn't be able to take advantage of a company fitness
programme because it would be deemed "self supply".

Unless I can sort this out, I might need to dream a little longer. If I
do, so be it, but I'm still hoping!

--
Geoff

 

[Marc Brett]

On 11 Apr 2007 19:29:11 GMT, Geoff Lane <[email protected]> wrote:

>Any ideas?

Head on over to the black economy -- eBay, Freecycle, cycle jumbles!

 

[Geoff Lane]

Nick Kew <[email protected]> wrote in news:0fuve4-rbc.ln1
@grimnir.webthing.com:

> ... wtf is "the new MSC legislation"?

Managed Services Companies anti-tax-avoidance measures. Depending on who
does your accounts, whether you work through agencies, and lots of other
stuff, your company could be deemed to be a Managed Services Company by
virtue of its relationship with an "MSC Provider", which would bring in
restrictions on (for example) whether you could transfer money from your
business to yourself via dividends *even if you're outside IR35*.

It seems to be confusing the h*ll out of tax professionals, so I don't know
how Greedy Gordon expects us lowly contractors to understand it.

http://www.shout99.com/contractors/showarticle.pl?id=42926 has some info.

HTH,

--
Geoff

 

[Clive George]

"Geoff Lane" <[email protected]> wrote in message
news:[email protected]...

> Unfortunately, IR35 prevents me from offsetting some legitimate business
> expenses against tax. This is because those expenses are "general" and
> cannot be directly attributed to a single contract, and so are included
> in the "deemed payment" under IR35 rules. Currently, the company has
> "losses" of over ten grand carried forward because of this, all business
> expenses on things like computers, software, and training costs. Because
> this is "deemed payment", personal tax and both sorts of NI have already
> been (IMO unfairly) levied on this money. I've paid the tax but haven't
> had the money and it seems fair to me to redress the balance just a
> little - but YMMV.

Isn't that an accounting failure? Surely a decent accountant would have made
some arrangement to avoid those problems. If it's not possible within the
single company (I think it ought to be), you could do something like eg like
larger companies, move the costs into a different entity, then that entity
charges your main company suitable lease values so you can apply them to the
contracts as applicable.

Re the bike thing : in a similar situation to you, I decided I couldn't
justify getting it through the company :-( OTOH there are those on this NG
who have got bikes which are definitely non-utility through it, so you can
get away with it.

cheers,
clive

 

[Geoff Lane]

"Nigel Cliffe" <[email protected]> wrote in news:evl14s$ntl$1$8302bc10
@news.demon.co.uk:

> The bike in question is supposed to be used mainly for commuting, but
> elsewhere the rules say that you (employee and employer) don't need to
> keep records.

Thanks, Nigel.

The problem that I have with the commuting requirement is that I work from
home and can't demonstrate making a significant number of business journeys
by bike. It would only take a cursory glance at the company records to
reveal this. I don't even go shopping for business stuff often enough to
use that as "an excuse".

--
Geoff

 

[Nick Kew]

On 12 Apr 2007 07:59:34 GMT
Geoff Lane <[email protected]> wrote:

> Nick Kew <[email protected]> wrote in news:0fuve4-rbc.ln1
> @grimnir.webthing.com:
>
> > ... wtf is "the new MSC legislation"?
>
> Managed Services Companies anti-tax-avoidance measures. Depending on
> who does your accounts, whether you work through agencies, and lots
> of other stuff, your company could be deemed to be a Managed Services
> Company by virtue of its relationship with an "MSC Provider", which
> would bring in restrictions on (for example) whether you could
> transfer money from your business to yourself via dividends *even if
> you're outside IR35*.

Oh right, that sounds like a closing of loopholes. OK, no danger of
my falling into that: far too disoganised to describe as "managed"

OTOH, I do appear to be going to suffer from this year's small
companies tax rise aimed at the likes of you:-(

> It seems to be confusing the h*ll out of tax professionals,

That's as may be, but I interpret it as *usually* being what your
tax advisor says when what (s)he actually means is "he's closed
this loophole you were benefiting from, and potential replacement
loopholes (if any) are untested".

/me feels smug having just declared a substantial dividend.
Except its value is rapidly disappearing, 'cos of most of my
income being in dollars. Ouch:-(

--
not me guv

 

[Geoff Lane]

"Clive George" <[email protected]> wrote in news:461e01a1$0$8747
[email protected]:

> Isn't that an accounting failure?

Possibly. However, it's a very complex subject and tax professionals have
advised me that there are enough pointers to employment for me to stand a
good chance of being deemed caught by IR35. I don't want to risk HMRC
bullying tactics - so I've paid the tax. AFAICT, the arrangement you
describe (where a second entity is created solely for the purpose of tax
avoidance) would at best be deemed a sham.

Thanks anyway,

--
Geoff

 

[Andreas =?iso-8859-1?Q?Schulze-B=E4ing?=]

Am 11 Apr 2007 19:29:11 GMT schrieb Geoff Lane:

> I feel that I've outgrown this bike and would love to upgrade to
> something like a Specialized Tricross Sport or Dawes Galaxy. Unfortunately,
> funds are tight and I could only afford about £400 - just over half the
> cost of either bike.

The Specialised and the Dawes Galaxy might be fine bikes, but even within a
budget of £400 you can get something decent. Dawes Horizon, Claud Butler
Regent, Raleigh Venture might be alternatives. As long as the frame fits
your needs, I would not worry. Some cheaper components might not last as
long - but you can change them for something better bit by bit.

Andreas

 

[permajeo]

I tend to agree that this is for personal use so..

a. If you want a better bike buy it from your personal not company income. £700 shouldn't be beyond the means of a professional with international clients, even if you have to save for a couple of months.

b. Get a decent accountant who understands IR35 and outside uk income and can help it work for you.

c. Don't misuse the system. That's why we ended up with the mess that's IR35 in the first place.

P

On 11 Apr 2007 19:29:11 GMT, Geoff Lane <[email protected]>
wrote:

>I'm a director of my own company which could be classed as a PSC (personal
>services company) because its main product is my time and expertise. Thus I
>have to worry about IR35 and the new MSC legislation. I've recently
....
>I work mainly from home and there is no opportunity to use the bike for
>commuting (and this would be obvious at the next HMRC compliance visit) so

Whilst I despise IR35 for going way, way, way, OTT it does seem -
sorry Geoff - that this is the sort of abuse it was meant to stop.

This is, from what you've said, a bike for personal use that you want
the company to pay for pre-tax, NI, etc.? As such, there should not be
a way around it IMO. The rest of us have to pay tax, NI, etc. then pay
for things that we want + vat, why should a "1 man band" company
(that's meant to be descriptive, not mean, sorry) be exempt from taxes
that every other PAYE employee has to pay? There are very major flaws
in IR35, but I don't see this scenario as one of them.

On a less antagonistic note, can you find any clients a few miles away
from base you could "need to visit" on occasions? Or a few miles away
from their local railway stations? Either way you could, legitimately,
use your bike to travel to them from the office/station?

 

[Nigel Cliffe]

Geoff Lane wrote:
> "Nigel Cliffe" <[email protected]> wrote in news:evl14s$ntl$1$8302bc10
> @news.demon.co.uk:
>
>> The bike in question is supposed to be used mainly for commuting, but
>> elsewhere the rules say that you (employee and employer) don't need
>> to keep records.
>
> Thanks, Nigel.
>
> The problem that I have with the commuting requirement is that I work
> from home and can't demonstrate making a significant number of
> business journeys by bike. It would only take a cursory glance at the
> company records to reveal this. I don't even go shopping for business
> stuff often enough to use that as "an excuse".

Obviously its your choice on tax decisions, particularly benefits which have
a personal element.

As I said, rules appear to be "no records required", so inspection would
require some serious stalking of you by HMRC.


Its evident to me that the "mostly for work" rule is heavily abused by
employees of larger companies offering cycles under this tax break. Yes,
some employees are genuine cycle commuters using those bikes for work, but a
large number of new bikes under the schemes seem to have majority leisure
use. (Including folks still commuting on their old clunker, with a nice new
tax free Sunday bike in the shed). So I think enforecement is very weak to
non-existant (and with a "no records" guideline, enforcement will be weak!).



regards,


- Nigel



--
Nigel Cliffe,
Webmaster at http://www.2mm.org.uk/

 

[Stuart Millington]

On 12 Apr 2007 06:57:45 GMT, Geoff Lane <[email protected]>
wrote:
>Stuart Millington <[email protected]> wrote in
>news:[email protected]:
>
>> Whilst I despise IR35 for going way, way, way, OTT it does seem -
>> sorry Geoff - that this is the sort of abuse it was meant to stop.
>
>Unfortunately, IR35 prevents me from offsetting some legitimate business
>expenses against tax. This is because those expenses are "general" and
>cannot be directly attributed to a single contract, and so are included
>in the "deemed payment" under IR35 rules.

Whilst we're all over-taxed by Gordon and his predecessors, these
rules, which are OTT in many cases, were meant to reduce the use of
such companies to avoid NI/PAYE taxes that would otherwise be payable
by "normal" employees. If the rules mean that you end up paying more
than you would under normal PAYE rules, then the answer is obvious.
OTOH if you're saving on NI/tax compared to PAYE, put it towards the
bike ;-)

Seriously, I hope you do find a way to get the bike you want.

 

[Geoff Lane]

Stuart Millington <[email protected]> wrote in
news:[email protected]:

> Whilst we're all over-taxed by Gordon and his predecessors, these
> rules, which are OTT in many cases, were meant to reduce the use of
> such companies to avoid NI/PAYE taxes that would otherwise be payable
> by "normal" employees. If the rules mean that you end up paying more
> than you would under normal PAYE rules, then the answer is obvious.
> OTOH if you're saving on NI/tax compared to PAYE, put it towards the
> bike ;-)

If only the obvious were possible. I can't afford to move to where
permanent employment might be available to me and not many employers would
be happy for their employees to work remotely on a permanent basis. Also my
age and other factors make me an unlikely candidate in the eyes of most
employers. However, the same people are prepared to pay an agency to find
"the right guy" and when an agency sends me they are usually pleased with
what I do. IOW, circumstances have coerced me into contracting and I don't
really have much choice, no matter how onerous our odious Chancellor makes
my life.

>
> Seriously, I hope you do find a way to get the bike you want.

Thanks!

--
Geoff

 

[Just zis Guy, you know?]

On 12 Apr 2007 07:59:34 GMT, Geoff Lane <[email protected]>
said in <[email protected]>:

>Managed Services Companies anti-tax-avoidance measures.

I work for a WSC and avoid precisely no tax at all. Abstrads.

Guy
--
May contain traces of irony. Contents liable to settle after posting.
http://www.chapmancentral.co.uk

85% of helmet statistics are made up, 69% of them at CHS, Puget Sound

 

[Nick Kew]

On 13 Apr 2007 21:01:50 GMT
Geoff Lane <[email protected]> wrote:

> Stuart Millington <[email protected]> wrote in
> news:[email protected]:
>
> > Whilst we're all over-taxed by Gordon and his predecessors, these
> > rules, which are OTT in many cases, were meant to reduce the use of
> > such companies to avoid NI/PAYE taxes that would otherwise be
> > payable by "normal" employees. If the rules mean that you end up
> > paying more than you would under normal PAYE rules, then the answer
> > is obvious. OTOH if you're saving on NI/tax compared to PAYE, put
> > it towards the bike ;-)
>
> If only the obvious were possible. I can't afford to move to where
> permanent employment might be available to me

That's no excuse. Neither can most people nowadays, except those
with family wealth behind them.

But I entirely sympathise with your desire not to move somewhere
ghastly. I spent the first half of my working life moving where
work took me, and have nothing to show for it. Truly a mugs game.

> and not many employers
> would be happy for their employees to work remotely on a permanent
> basis.

Alas, that's still largely true in this country, though a friend
works from Thailand for an employer in Bristol. It'll come: american
employers seem to be ahead of us on that one, and my most important
client (a company based in Boston, USA) has employees as well as
contractors working thousands of miles away.

> Also my age and other factors make me an unlikely candidate in
> the eyes of most employers.

Heh. Now that one I can definitely sympathise with.

> However, the same people are prepared to
> pay an agency to find "the right guy" and when an agency sends me
> they are usually pleased with what I do.

Have you not considered cutting out the agency? Put some (verifiable)
testimonials with your CV on the web ... and give it a few years while
you starve before you reap the rewards.

> IOW, circumstances have
> coerced me into contracting and I don't really have much choice, no
> matter how onerous our odious Chancellor makes my life.

The one that p***es me off is abolishing the tax-free allowance for
small businesses. In plain earnings terms, yes it was a loophole
if you have a steady income. But very useful in mitigating the
difficulties of a highly variable income. And of course, abolishing
it just provides a complete disincentive to investment.

--
not me guv