Contractor- Claiming tax on purchases?

hotcookie101

Hi,
My OH is currently working on a 6month IT contract (in the same place for the same company), being paid via an umbrella company. He reckons he can claim tax back on a £550 bike he wants to buy, I am worried about the legalities of this. He cycles to work every day, so it would be used as a mode of transport, but my thinking is you can't claim back a car can you?
If he did this is he likely to have to pay it back to the IR? I don't want him to be hit with a massive tax bill, or worse still get done for tax fraud (my gut feeling is that all these "expenses" that the umbrella companies allow are not quite kosher?)

Richard019

hotcookie101 wrote: »

Hi,
My OH is currently working on a 6month IT contract (in the same place for the same company), being paid via an umbrella company. He reckons he can claim tax back on a £550 bike he wants to buy, I am worried about the legalities of this. He cycles to work every day, so it would be used as a mode of transport, but my thinking is you can't claim back a car can you?
If he did this is he likely to have to pay it back to the IR? I don't want him to be hit with a massive tax bill, or worse still get done for tax fraud (my gut feeling is that all these "expenses" that the umbrella companies allow are not quite kosher?)

It might depend on how he does it (ie Ltd company or sole trader).

As a limited company he could claim the cost of buying a car as a business expense, but then he would also need to adjust the tax on his salary as having a company car that is available to you (whether you use it or not) has an effect. The car would then be part of the company rather than his so insurance might be different but this is all irrelevent as we're talking a bike.

As a sole trader I don't think he'd be able to do that as the ownership would be his.

I don't see why a pushbike would be any different. Whilst they almost never happen having a company bike is no different to having a company car, except I don't think there are any tax implications on salary if you're given the use of a company bike?

How many miles is he doing though? If it's 5 miles each way (a reasonable claim), then over 190 days a year (I assume he plans on having another job after the 6 months) he'd be doing 1900 miles. He can claim 20p per mile for a pushbike so it's £380 tax free for the year. Near enough 2 thirds of the price. After two years he's recouped the same amount from the tax man and then some as well as the bike being his own and not part of the company.

He won't be able to claim for both because ,the mileage allowance is to replace losses (wear and tear) he's incurred which if "the company" has bought the bike he won't be incurring. If the company bought it and gave it to him in terms of ownership the company could reclaim the tax but he'd have to pay it as a 'gift in kind'.

EDIT: The only issue I could find with that is that it's supposed to be expenses incurred for the job not in getting to it. However in this case I would have thought that the home was his normal place of work (if he does his books etc there) and the contracts he took on meant he had to move between one location and another. It's in principal the same as me claiming back my travel expenses for mystery shopping, and that's standard practice.

paulus

The green transport legislation allows employers to provide bikes to employees tax free. The employer, in this case the umbrella, would have to own the bike but would typically sell it on to the employee for a notional amount at the end of the loan period.

jimmo

I see that you haven’t received any quick replies so I’ll have a go.
My trouble is that IR35 and umbrella companies came into being after I had moved away from that kind of work so I cannot claim professional knowledge on what is probably the basic principle.
Anyway, as I understand it, in the IT field the 2 most common solutions mean that either your husband can set himself up with a limited company of which he is a director and be subject to tax as an employee of his limited company or he regards himself as self employed but is regarded, for tax purposes as an employee of an umbrella company.
He cycles to commute between work and home. That is not a business journey for tax purposes. It’s commuting.
If he is self-employed he can’t claim a penny in tax relief in respect of his commuting expenses. End of story.
If he is an employee and his employer provides him with a bicycle then his employer can claim capital allowances on the bicycle. Normally an employee who is provided with an asset by his employer will be charged to tax on the benefit in kind but there is a specific exemption for bicycles used mainly for commuting so no benefit in kind will apply.
So, if your husband is a director of his own company the company can buy the bike and claim capital allowances. There will be some tax relief but, realistically, nowhere near the £550 cost of the bike in the first year.
For completeness if your husband is an employee of the umbrella company and the umbrella company buys the bike then they can claim capital allowances but let’s face it, that’s not going to happen.
So, the purchase of a new bike could offer some possibilities of some tax relief. I seriously doubt it and think that your husband is walking into a tax minefield.

hotcookie101

He is self employed, but working for the same company at the same site on a 6 month contract. He bikes approx 3.5miles each way every day so approx 7miles. He has been told by other contractors he works with that he will be able to claim back the VAT on the bike as an allowable expense. The umbrella company does seem to say he is entitled to lots of things as expenses. He doesn't do his books, essentially he is an full time employee of the company but gets paid through an umbrella company and isn't entitled to any full time benefits (holiday pay etc)

jimmo

Ahah! You are looking at claiming back VAT.
In that case my reply at #4 will be a load to gibberish because it’s all about Income Tax.

hotcookie101

I think he reckons can claim the VAT back through his PAYE though? Thats why I am so confused

Incisor

hotcookie101 wrote: »

I think he reckons can claim the VAT back through his PAYE though? Thats why I am so confused

Doesn't sound right? To claim back VAT he needs to be VAT registered, I would have thought.

mrtg0525

Indeed you have to be VAT registered to claim back VAT, which pretty much means that the OP's husband would have to run his own business as opposed go via an umbrella company unless the umbrella co claims back the VAT for him. IMHO (I'm an IT contractor as well), umbrella companies are bad news anyway, especially given the recent changes in legislation that, surprise, surprise, more or less constitute a crackdown on umbrella companies.

@hotcookie101 - my advice would be to talk to an account who deals with IT contractors a lot. The tax rules aren't the across vehicle classes and I'm only relatively up to speed with the ones for cars and motorbikes as cycling 60 miles each way is w bit far for me . It may well be that his company would be able to provide him with a company bicycle and he'd only have to pay the usual benefit in kind charge for personal use, but you need to research that as I simply don't know.

If he is cycling a lot then I would think that simply charging the company the mileage is probably the easiest way to expense the bike. This is what I do with my motorbike travels for the company and the odd car journey and it is the simplest way in my opinion as long as you can keep a log of the miles.