Expenses and Benefits – Support for public bus servicesWednesday, December 23rd, 2009
Section 243 of the Income Tax (Earnings and Pensions) Act 2003 provides exemption from income tax on the provision of financial or other support for a public transport road service. The exemption, which also applies to National Insurance contributions, allows an employer to pay subsidies to a bus company in order to
- obtain free or reduced price fares for employees
- obtain reduced-price season tickets for employees
- put on a new public bus service or extend an existing public bus service, so that the place of work is more accessible by public transport.
Two or three conditions, depending on the type of public bus service that is being supported, must be met in full if the exemption from both tax and NICs is to apply to the provision of such financial or other support:
- in the case of a registered local bus service, i.e. one that has regular bus stops along the route,
- the service is used by employees of one or more employers for “qualifying journeys”, and
- the service is available generally to employees of the employer, or each employer.
- in the case of other bus services
- the two conditions as above, and
- the terms on which the service is available to the employees are not more favourable than those available to other passengers.
The difference in the conditions means that, in the case of local bus services, employees may be carried free or at reduced fares.
The term “qualifying journey” means the whole or part of a journey
- between the employee’s home and workplace, or
- between one workplace and another,
- in connection with the performance of the duties of the employment.
The exemption also applies if the services are provided by means of non-cash vouchers, but not by means of the employer’s credit card. The financial support provided for local bus services may, therefore, take the form of a bus pass for use on the specific bus services that constitute “qualifying journeys”.
Some employers use this exemption in conjunction with salary sacrifice arrangements that provide employees with bus passes. As shown above, that would not be a problem if the bus passes were restricted to specific bus services. However, the bus passes issued under these arrangements are area-wide bus passes and may, therefore, be used without restriction on other bus routes and services. Such bus passes do not fall within the exemption and, as a result, the benefit must be reported for each employee on form P11D.
In December 2009, HMRC drew this situation to the attention of employers, acknowledging it had communicated the requirement of some of the qualifying conditions less clearly than others. For that reason, employers were advised the HMRC would enforce the rules strictly from 18 December 2009 in the following manner:
- For employees that had “entered into bus pass salary sacrifice arrangements by 18 December 2009”, the exemption will be treated as continuing to apply until the end of each such employee’s current bus pass salary sacrifice agreement, provided that the agreement relates to a bus pass that lasts for no more than 12 months.
- Any renewal after 18 December 2009 of the current bus pass agreement for a new bus pass or to extend the period of the current bus pass will be treated as a new arrangement. It will only be treated as exempt if the conditions of the exemption are fully satisfied and therefore arrangements that rely on area bus passes as opposed to travel on a specific supported bus route will not qualify for exemption.
- For any employee that had not entered into bus pass salary sacrifice arrangements by 18 December 2009, the exemption will only apply if all conditions are fully satisfied.
In relation to situation 1 above, an employee will be treated as having entered into a bus pass salary sacrifice arrangement by 18 December 2009 if
- the arrangement was actually operating before the end of 18 December 2009, or
- the arrangement had been finalised in writing before the end of 18 December 2009, provided that it was due to commence no later than 6 April 2010 and it is limited to the provision of a bus pass of no longer than 12 months duration.
Flexible benefit arrangements that allow employees to elect for the provision of a cycle are treated in the same manner.
From 18 December 2009, therefore, employers wishing to ensure that the exemption applies to employees who sign up to or renew bus pass salary sacrifice arrangements must ensure that they offer the benefit across the workforce as a whole. If this is not done, the employer is responsible for including details of the taxable benefit on form P11D for each affected employee and for accounting for employer’s Class 1A NIC liability.
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