Spend enough time on social media in the “cycling” space and it won’t be long before someone mentions the “T-word”. “You don’t pay tax” they’ll say.
Of course, most of us know that the “road tax” they allude to was abolished in the 1930s by Winston Churchill. What we have now is an emissions tax, Vehicle Excise Duty, which just like electric cars we are rated zero for. Roads are paid for through general taxation and council tax, which we all pay.
However, there are other taxes that we can avoid without having to open a shell corporation in the Cayman Islands. Let us show you how…
The nail that sticks out…
The average cost of an average sized car in the UK in 2020 is £23,185. However, cars are liable for 20% VAT as part of that average cost, so £4,637 for this example. That’s enough to buy a few really nice bikes before we’ve even left the forecourt.
Next, 57.95p of every litre of fuel is tax, plus vehicle insurance is taxed at 12%. The average cost of motor insurance is £485 per year in the UK, so that’s another £58.
On top of that, there’s also a Vehicle First Registration Fee, which is currently £55.
That’s a lot of tax, but it’s still not enough to cover the costs to society of all that motoring.
Contrary to claims by transport ministers and motoring organisations that car drivers pay more in fuel and vehicle taxes than they receive back in spending on roads, the ‘true’ cost of motoring is more than double the tax revenues – £32.5bn as against £13.8bn – according to Transport 2000, the environmental pressure group.Government challenged over motoring ‘myths’: Real cost of roads far higher than ministers say, transport pressure group claims | The Independent | The Independent
Meanwhile a £1000 bicycle may see £200 of VAT added, but most nutritious food (or fuel in this context) is VAT-free. If you make granola bars at home to take on a ride, you probably won’t pay any VAT on the ingredients. If you subsist on fruit and veg, no VAT for you.
If you choose to take out insurance beyond the liability insurance included with CyclingUK or British Cycling, I think I used to pay around £10 per month to cover two bikes with Cycleplan, insured for £1000 each covering theft and personal injury.
Cycle To Work Scheme
Whilst there are a number of cycle to work schemes around, your employer may well have chosen one for you. The way these schemes work is quite simple –your employer gives you a voucher for a bicycle (which varies depending on the scheme), you give that to the bike shop and you walk away with the bike of your choice, plus any other accessories included in the scheme.
From this point your employer effectively owns the bike, but leases it back to you for a fixed period of time.
As it is a salary sacrifice scheme, the cost is deducted from your gross pay, meaning that less tax is applied to your net pay. At the end of the agreed term you have the option to purchase the bicycle at its current market value –your bike will be a few years old at that point and worth a heck of a lot less than the original sticker price.
What is even better news is that many schemes have been extended beyond the original £1000 limit, putting an ebike within reach.
Travel & Subsistence
Once you have your bike, if you ever need to travel locally to meetings (remember when we did that…), there’s no need to miss out on that sweet, sweet travel & subsistence just because you’re not using a car. You can currently claim 20p per mile for work-related trips, not including the commute into work or home.
You may be able to claim tax relief if you use cars, vans, motorcycles or bicycles for work. This does not include travelling to and from your work, unless it’s a temporary place of work.Claim tax relief for your job expenses: Vehicles you use for work – GOV.UK
Rather than hand your hard-earned cash back to OPEC as you would with a car, you could just buy yourself a cake with that 20p per mile.
One unfortunate cost to buying anything new is that depreciation will take a bite out of the value, usually as soon as you hand over your money. This is a massive chunk of money in the case of a car, but it happens to a lesser extent with bicycles too.
One way to avoid the ravages of depreciation is to buy used. We have a handful of excellent workshops in Cardiff where you can buy something quirky, possibly a little retro, for a fraction of the cost of a new one.
Best of all, you’ll be supporting a local trader and reinvesting into the local economy.
Save & Invest…
Lately we’ve been banging on about saving and investing, but before doing so you should really consider sheltering your investments from capital gains tax. You can do this using a stocks & shares ISA.
Most investment platforms offer an ISA. Some charge, some don’t, but if your investments gain more than the tax allowance, you could end up being stung with the bill. Each of us has (currently) £20,000 per year as part of the ISA allowance, which renews each April.
That £20,000 can be split across a cash ISA and a stocks & shares ISA within the same year. You can also transfer your ISA from one provider to another within the same year. Once inside, your assets can appreciate in value as much as they like without incurring any capital gains tax.
It is frustrating that every time there is any sort of engagement on the internet to promote cycling, the usual suspects appear in the comments section with the usual ill-informed guff about not paying tax.
However, you really can save an awful lot of tax by not having a car, it just has very little to do with VED. If you are going to buy a £20,000-£50,000 liability, you will pay handsomely for it, but so you should. For every mile driven, society pays 95p. For every mile cycled, it’s just 28p.
There is a cost to society for every mile cycled of 28p, whereas the cost per mile driven is 95p, more than three times as much. There is a difference of 67p between the cost per mile cycled and the cost per mile driven. We call this difference, the 67p, the value to society of cycling a mile above driving a mile. Estimating a proportion of miles cycled rather than driven enables us to calculate the economic gain of cycling to society.Can we put a figure on the value of cycling to society? – Sustrans.org.uk
We may pay less tax, but we also get sick less, we pollute less and our infrastructure projects are one heck of a lot cheaper. As an example, the road they’re planning to build through Pendoylan, all 5.5Km of it will cost between £76m and £40m. That’s roughly enough to build 40-70Km of cycle lanes.
Buy a bicycle instead.