When Is a Taxi Ride Home After Work Not Taxable?
Tuesday, September 21st, 2010
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Section 248 of the Income Tax (Earnings and Pensions) Act 2003 provides a statutory exemption from income tax for the provision of transport home after late night working. Five very specific conditions must be met for the exemption to apply.
Employers wishing to make use of the exemption must also understand that there is also a direct link between this exemption and the exemption that covers payment for journeys home when car-sharing arrangements break down. The number of journeys for which any combination of the two exemptions can apply is limited to 60.
The exemption for transport home after late night working is defined as follows in the Act:
No liability to income tax arises in respect of the provision of transport or the payment or reimbursement of expenses incurred on transport if the transport is for a journey from the employee’s workplace to the employee’s home, and
(a) the journey is made on an occasion when the employee is required to work later than usual and until at least 9 p.m.,
(b) such occasions occur irregularly,
(c) by the time when the employee ceases work,
(i) public transport has ceased to be available for the journey, or
(ii) it would not be reasonable to expect the employee to use it,
(d) the transport is by taxi or similar private road transport, and
(e) 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.
HMRC’s guidance on the application of these conditions is published in the Employment Income Manual, starting at www.hmrc.gov.uk/manuals/eimanual/EIM21831.htm. The following notes are only a summary of the guidance. Employers should bear in mind that HMRC’s guidance has no statutory authority and that, where a tax inspector takes the view that the exemption does not apply in a particular situation, it would not be inappropriate for an employer, who has taken a different view of the overall situation, to challenge the inspector’s decision. It is, in fact, very difficult to imagine how the 60-journey limit could possibly be reached on the basis of HMRC’s interpretation of the conditions, particularly condition (b).
Nevertheless, all of the conditions must apply in full to each journey if that journey is to benefit from the tax exemption.
Condition (a) effectively sets a double condition – it expects that the employee will be required to work (1) later than usual and (2) until at least 9 p.m. The exemption, therefore, is intended to apply to an employee who normally finishes work before 9 p.m. and is required to work later than usual and until at least 9 p.m. An example of a valid situation is a secretary who works 9 to 5 each day but is required to work late one evening to finish a job. She works until 10 and a taxi is arranged to take her home. The exemption applies if all of the other conditions are also met.
However, the condition is not satisfied, for example, where
- the secretary in the example decides herself to work late – she must be “required” to work late
- restaurant or pub staff are normally required to work late most nights – it is “usual” for them to work late and until at least 9 p.m.
- an employee’s contractual hours are 12 a.m. to 8 p.m. but he normally works until 10 p.m. or later – he is not working later than usual, even when required to work until 10 p.m.
Condition (b) requires the occasions when an employee works late to be “irregular”. The journey must result from a requirement to work late that is different from the employee’s established pattern of working. An acceptable situation would be an employee who works late for a week in order to complete a project but, looking at the overall pattern of the employee’s work during the year, there is otherwise rarely a requirement to work late.
The condition would not be met, for example, where
- an employee works late on one day a week – late working is a regular occurrence, even if the day varies each week
- a payroll officer works late one day each month in order to complete payroll processing – there is a pattern of late-night working that is a regular part of the job.
Condition (c) presents two alternative situations involving the public transport.
The first, whether public transport is still available, is a matter of fact. However, HMRC accepts that, if an employee uses different types of public transport to travel home and one of those means is no longer available, public transport is treated as not available for the whole journey.
The second, whether it would be reasonable for the employee to use the available means of public transport, has no statutory test. It is for the employer to decide, taking all factors into consideration. HMRC does not accept that it would be reasonable to provide a taxi home simply because
- the employee
- has to travel home from work in the dark, or
- has had a long working day and is tired, or
- has a heavy briefcase or bag to carry home, or
- travels by public transport to a station that is unmanned, or
- the frequency of public transport is reduced.
A combination of these factors may make the use of public transport unreasonable but HMRC does not accept that one factor by itself would be sufficient. The employer should consider whether the journey home after 9 p.m. is significantly different from the same journey earlier in the day. For example, HMRC would accept that it would not be reasonable to use public transport if the journey would take significantly longer to complete, i.e. an hour or more. The employer may also take the employee’s perception of personal safety into consideration.
For example, an acceptable situation would be an employee whose journey would be a half hour longer if undertaken by public transport after 9 p.m. Although that is not significantly longer than normal, the employer also takes into consideration that the employee lives in the countryside and the train station and roads to her home will be deserted. The journey home by taxi would not be taxable if the other conditions are met.
Condition (d) is not considered by HMRC to be at issue. The tax exemption applies whether the employer pays for the taxi or the employee pays with money provided by the employer, either before or after the journey.
Condition (e) restricts the total number of occasions on which commuting journeys enjoy this tax exemption to 60. Other non-exempt journeys are not counted. As already mentioned, the limit applies collectively to tax-exempt journeys prompted by late-night working or because of a breakdown in car-sharing arrangements.
Record keeping
HMRC expects employers to have the necessary management checks in place and keep sufficient records to be able to show that the late-night working conditions set out in the legislation are satisfied in all cases. HMRC will not accept that an arrangement whereby a taxi service is available on call after 9 p.m. meets the conditions for exemption. Neither is it enough to publish a set of rules for employees to follow if nothing is done to ensure that the rules are followed. Although it is not necessary to have a procedure that requires the use of a taxi to be approved in advance, any checking system employed should be capable of being audited.
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