Late night taxis..the revenue get tough!
HMRC have tightened up their interpretation of rules which can enable employers to pay for taxis for late working employees without incurring a tax liability.
If an employee works later than usual at night it is not uncommon for an employer to pay for a taxi home. Is this a taxable benefit? In general – Yes – but there is an exemption in certain circumstance provided by the tax legislation (section 248 Income Tax (Earnings and Pensions) Act 2003).
The circumstances are:
- the transport is for a journey from the employee's workplace to the employee's home;
- the late working conditions are met, and
- the number of previous occasions in the tax year on which the provision of transport within this section or the payment or reimbursement of expenses within this section has occurred is lower than 60.
The late working conditions are:
- the journey is made on an occasion when the employee is required to work later than usual and until at least 9pm;
- such occasions occur irregularly;
-
by the time the employee ceases work, public transport has ceased to be available for the journey, or it would not be reasonable to expect the employee to use it; and the transport is by taxi or similar private road transport.
Where the exemption does not apply it is not unusual for an employer to settle any tax liability for the employee by what is known as a PSA (PAYE Settlement Agreement). Apparently, a large London employer made a claim to have some tax paid under a PSA repaid because it had not deducted the first 60 journeys for each employee when calculating the tax due. This caused the Revenue to look closely at the claim as the 60 trip rule means that once it is breached all journeys are taxable - not that the first 60 are exempt.
Having discovered that this employer had misinterpreted the rules the Revenue went on a major offensive against large employers (mainly in London) and discovered widespread non compliance.
The result of all this is a revision of the Revenue’s Employment Income Manual. The Revenue have clarified that the 60 trips is a ceiling on exempt trips (where all other conditions are satisfied) and not an exemption for the first 60 trips. They also make it clear that where public transport continues after 9pm (as it does for many hours in London) the exemption is unlikely to apply.
The Revenue are also being tough on what can be classed as irregular; a late night taxi once a week but on different nights would not qualify, neither would a taxi every night for a month to complete a special project.
