Employers may be considering the reimbursement of congestion charges that their staff are now having to pay. Is this taxable in the case of commuters or where there is a mixture of business and private purpose? Not necessarily, say Deloitte & Touche.

Currently the reimbursement of a business expense is tax-free and the reimbursement of a personal expense is taxable. The cost of commuting is a personal expense, so one would expect that the reimbursement of the congestion charge would only be tax-free where the employee had to drive into the central zone for a business engagement away from the normal place of work and for no other reason. Where, for instance, an employee normally commutes by car into the central zone but visits a customer before staying in the zone to work at the office for the rest of the day, the Inland Revenues consider the purpose of the journey to be primarily private so one would think the reimbursement of the charge was taxable. This is largely the position the Inland Revenue took in its commentary on this issue on the Inland Revenue website.

Deloitte & Touche has examined the detail of the tax legislation and come to a contrary conclusion in the case of company cars and vans. For such vehicles, Deloitte & Touche has always believed that the reimbursement should be tax-free - even for commuters. This view was put to the Inland Revenue and has been confirmed that it is indeed correct. This is not brought out in the Inland Revenue commentary and they have told Deloitte & Touche that they are to review the effectiveness of their guidance and will expand this if necessary.

This will come as a considerable surprise. After all, employees driving their own car don’t have this advantage, nor do the self-employed. The reason lies in the way the benefit of using an employer-owned car, or van, is taxed. The fixed-rate charge covers all costs of providing the vehicle, including repairs, insurance and similar costs. The congestion charge is such a cost. This is because the congestion charge relates to a specific vehicle, not to the person who happens to be driving it at the time. The same applies to penalty charges received.

The exemption is not available in the same way for pooled cars and vans (see editors’ note below). For these, there is the possibility of a tax charge on the reimbursement or payment of the congestion charge in the rare instances where on a given day the only journeys into the central zone are incurred for private purposes.

A partner at Deloitte & Touche commented: “Many employers will wish to reimburse or pay for congestion charges where there is no realistic alternative to driving into the central zone – early and late shift workers where their shift overlaps into the charging period, for instance. Even where travelling by the company car, or van, is not really a business necessity, employers could provide a useful tax-free perk by reimbursing the charge.”

Notes for editors

The Inland Revenue guidance regarding congestion can be found on their website at www.inlandrevenue.gov.uk/cars/concharging_tax.pdf.

The charging period is from 7am to 6:30pm, Monday to Friday, excluding public holidays.

The benefit of minor or incidental private use of a pooled car or van is not normally taxed. To qualify, it must not be used by a single employee to the exclusion of others and must in fact used by more than one employee. It should be rarely used for private journeys and should not be kept overnight at the employee’s home.

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