The business current account provider Anna recently launched an experimental “tax advice bot”, Terrapin. In fairness to them, they’re not holding it out as the finished article, or as a substitute for real-life advisers! But it’s a good illustration of something we often say - the skill in our work often doesn’t lie in just answering the question we’ve been asked, but in identifying what the correct question to ask actually is.
Obviously, what one wants to do is to pick a question where there’s a good chance of getting the wrong advice. And actually the first one we picked to ask worked perfectly.
We asked: “Can I save tax on a bike I've purchased to travel to my studio?”
Terrapin replied: “Yes, you can save tax on a bike you've purchased for commuting to your studio through the Cycle to Work scheme. This scheme allows your employer to loan you a bike and safety equipment as a tax-free benefit. The cost of the bike and equipment is deducted from your salary before tax and National Insurance contributions are calculated, resulting in a tax saving. The amount you can save depends on your tax band, with basic rate taxpayers saving 32% and higher rate taxpayers saving 42%. For example, if you purchase a bike and safety equipment worth £600, as a basic rate taxpayer you could save £192 in tax.”
But how does Terrapin know that the questioner is an employee? There’s nothing in the question to imply that’s the case (in fact, “I”, “I’ve” and “my” all suggest it’s not, though to be fair it’s entirely possible someone working via a limited company could thoughtlessly phrase the question that way).
So, we followed up with a clarification: “Those are the rules for employees - I'm self-employed.”
Terrapin replied: “As a self-employed individual, you can claim tax relief on the cost of buying a bike if it's used solely for your business purposes. The cost of the bike can be claimed as a capital allowance, which allows you to deduct the value of the bike from your profits before calculating your tax liability. For example, if you purchase a bike for £500 and use it exclusively for your business, you could claim the entire amount as a capital allowance. This could potentially reduce your tax bill by £100 if you're a basic rate taxpayer.”
Useful links:
1: https://gov.uk/hmrc-internal-manuals/tax-credits-manual/tcm0126220
2: https://gov.uk/hmrc-internal-manuals/tax-credits-manual/tcm0118180
3: https://gov.uk/working-for-yourself/print
There’s a new problem here, though! Terrapin has now understood what set of rules it should be looking at. But, a non-accountant is clearly going to quite reasonably imagine that getting to their workplace is a “business purpose” in this context. It’s not, though. So we nudged Terrapin towards the right answer once more:
“I think you're overlooking that I use it to commute to my place of work. I understand that's not a qualifying business trip.”
Terrapin replied: “You're correct in your understanding. For self-employed individuals, travel between your home and a regular, permanent place of work is generally not considered a business journey, and therefore the costs associated with this travel cannot be claimed as a business expense. This is often referred to as 'ordinary commuting' and is the same rule that applies to employees. The cost of a bike used for such commuting purposes would not be allowable as a capital allowance. The rules are different for travel to temporary work locations or for journeys that are all at once part of the performance of the work duties. As a self-employed individual, you cannot claim the cost of commuting to your regular place of work as a business expense, including the cost of a bike used for this purpose. This is considered 'ordinary commuting' and the costs associated with it are not allowable as a capital allowance.”
Useful links:
1: https://gov.uk/hmrc-internal-manuals/business-income-manual/bim37600
This is a pretty good answer - but it was only reached by repeated questions from someone who knew the right answer to begin with. It’s effectively doing the job of an unskilled accountant, who can only get to the right answer with the guidance of a very sophisticated client!. To repeat, this is not a knock on this particular tool, which is an explicitly experimental one. But tax and accounting advice very often involves figuring out what the real issue is, rather than simply addressing the initial question. Of course, it might be that AI quickly catches up with the experience, thoughtfulness and pattern recognition of good advisers. It’s some way off it at present though.
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