DOC

Tax and Travel Plan Measures

By Annie Robinson,2014-05-06 13:59
8 views 0
Tax and Travel Plan Measures

    Tax and Travel Plan Measures

    Stephen Potter

    Professor of Transport Strategy

    The Open University

    DRAFT: December 2007

Acknowledgement: Thanks are due to Elizabeth O'Donnell of HM Revenue & Customs who checked

    that the advice this paper contains complies with current legislation.

? Stephen Potter, 2007

The tax situation for Travel Plans can raise issues of concern but should also be seen as an

    opportunity to promote a Travel Plan as offering tax efficient benefits to staff. The issues arise

    because, in general, the tax system treats employer support for commuting as taxable ‘income

    in kind’; it is an opportunity because many Travel Plan benefits are specifically exempt. Thus it

    is possible to promote your Travel Plan as offering a tax efficient benefit to staff.

However, you do need to be clear if the measures in your Travel Plan are tax exempt or not.

    The following is a summary of the situation for major Travel Plan measures regarding

    employment taxes (that is Pay As You Earn (PAYE), National Insurance (NI) and Income Tax).

It should be noted that employment taxes only affect Travel Plan benefits received by

    employees. Travel Plan benefits received by non-employees, such as students, customers or

    visitors, do not have any employment taxes issues.

Bus services

    Tax and NI free benefits are:

    ? Employer-provided works buses with nine or more passenger seats.

    ? An employer-negotiated discount with a bus company passed on to employees.

    ? Interest-free loans (as long as the total does not exceed ?5000 per annum) to buy season

    tickets.

    ? Employer-subsidised public bus services where the employer has a contract with the

    operator. The contract can include service enhancement and also discounted or free

    fares for staff for travel between home and work.

    ? Bus season tickets/passes for employer subsidised bus services purchased through

    ‘salary sacrifice’ arrangements.

Works bus

    A ‘Works Bus’ is a bus or coach seating 12 or more passengers or a minibus seating 9

    passengers or more. Smaller vehicles are not covered by this exemption. As long as the service

    is used mainly for commuting or travel between workplaces, employees and their families can

    occasionally use it for other trips (e.g. a lunchtime shopping run).

     1

Employer-subsidised public bus services

    The tax concession on employer-subsidised or free fares on local public buses requires that the employer makes direct payments to the bus service provider for journeys between home and

    work or between workplaces. Other ways to subsidise tickets are still taxable; for example, if an employer simply buys up stocks of tickets and gives them out free or at a subsidised rate. If they do that, tax will be due on the cost to the employer of buying the ticket unless the

    employee makes good the full cost to the employer.

    Salary Sacrifice purchased bus tickets/passes

    Under these schemes the employer provides employees with passes for a month or longer for

    public bus services. The employee pays through a deduction (‘sacrifice’) from their pre-tax

    salary. A the employee does not pay income tax (22% or 40% higher rate) or National

    Insurance (11%), this effectively cuts the cost of bus travel by at least a third. For example the price of an annual bus pass costing ?600 would be reduced to ?408 for a basic rate tax payer

    and to ?349 for a higher rate tax payer.

In addition, as the employer does not pay 12.8% National Insurance on the sum deducted, they

    also save money as well. For a ?600 bus pass, the employer would save ?76 in Employer NI

    contributions.

Some bus operators help employers to set up salary sacrifice schemes and the marketing

    services company Motivcom provide this in their Greentravel2work? product.

The bus pass must be provided for home to work commuting or work related travel, but use for

    other trips as well may be permitted. Regarding bus fare subsidies and the salary sacrifice

    scheme, there can be an issue if a local Tax Inspector feels that the recipient is not using the bus benefit provided for commuting or other work-related travel. This is less likely in the

    context of a Travel Plan and subsidiary use of a bus pass for private travel may be allowed. If your bus measure could provide significant benefit for private use you should check with your local Tax Inspector to make sure you get the scheme’s design right.

Other public transport

    (Trains, tube, metro, trams, ferries etc)

    The following are tax- and NIC-free for any public transport mode:

    ? Passing on discounts for bulk-purchased tickets to employees (but not selling to

    employees for less than the cost to the employer).

    ? Any negotiated fares reductions with bus operators.

    ? Interest-free loans (as long as the total does not exceed ?5000 per annum) to buy season

    tickets.

Any other support for commuting remains taxable, including:

    ? Subsidies to train, tram, ferry or metro and tube fares.

    ? Bus fares where there is no contract with the operator.

    ? Tickets covering routes not serving your site.

     2

The only exception is if an individual employee travels sufficiently for business on public

    transport such that it is cheaper for them to be provided with a season ticket for business travel

    (i.e. the cost of the season ticket is no more than the individual business journeys would have

    cost if they were paid for separately). In such circumstances the employee can also use the

    season ticket for commuting without being liable to tax and NICs.

Bicycles

    The loan of cycles and cycle safety equipment are entirely exempt, with no ceiling on their

    value provided that:

    ? The employer owns the cycle or equipment.

    ? Employees use the equipment mainly for qualifying journeys; i.e. for journeys made

    between home and the workplace, part of those journeys (e.g. to the station) or for

    journeys between one workplace and another.

    ? The employer makes cycles and equipment generally available to all employees (even if

    not all employees participate).

Tax law does not define the meaning of ‘cyclists' safety equipment’ and the DfT advocate a

    common sense approach and say this could include:

    ? Cycle helmets that conform to European standard EN 1078.

    ? Bells and bulb horns.

    ? Lights, including dynamo packs.

    ? Mirrors and mudguards to ensure riders visibility is not impaired.

    ? Cycle clips and dress guards.

    ? Panniers, luggage carriers and straps to allow luggage to be safely carried.

    ? Locks and chains to ensure cycle can be safely secured.

    ? Pumps, puncture repair kits, cycle tool kits and tyre sealant to allow for minor repairs.

    ? Reflective clothing along with white front reflectors and spoke reflectors.

The provision of cyclists’ breakfasts is also specifically tax-exempt, as is workplace parking for

    bicycles (and parking for motorcycles and cars).

    Cycle to Work Salary Sacrifice Scheme

    If employers want to loan cycles to their employees but need to cover their costs of buying the

    cycles, they can set up a Cycle to Work Scheme. This provides a way for employees to pay for

    the loan of the bicycle from their pre-tax income.

The process is that the company buys the cycle and the employee is loaned the cycle following

    a ‘salary sacrifice’ from their pre-tax salary to the employee, usually for between eighteen

    months and three years. At the end of the period the employee may be given the option to buy

    an ex-loan cycle from their employer for a written down value. As with the bus pass salary

    sacrifice scheme this effectively reduces the price the employee pays by about 33% plus 17.5%

    VAT

Providing the employee pays the fair market value for the cycle, no tax will be due when

    ownership of the cycle transfers from the employer to the employee. The value can be very low

    as normally the employer would need to carry out servicing and marketing of the bike and such

     3

costs could be deducted from the notional market value of a second hand bike. Employers will

    often not pass on the cost of the 17.5%VAT due on the cycle when new, thus reducing the price

    further. The employer also benefits from lower Employer National Insurance payments, which

    helps cut the cost of the scheme to them.

There are a number of companies that offer Cycle to Work package deals, including Halfords,

    Boots, Evans Cycles and various local networks of cycle shops.

Interest-free loans to buy cycles are also tax exempt from tax, providing the total of all loans

    outstanding with the employer do not exceed ?5000.

Cycle maintenance and rescue services, however, remain taxable. This can affect ‘Dr Bike’-

    type provisions and cycle rescue services. A group scheme may have a low cost per head so if

    you are uncertain about whether the arrangements you plan are liable for tax contact your local

    Tax Inspector.

Carshare backup

    Emergency and alternative backup ‘get-you-home’ transport for car sharers is tax-exempt (up

    to sixty trips a year).

Temporary and insubstantial benefits

    Temporarily provided Travel Plan measures (e.g. if commuting benefits are provided to people

    who are moved to another site during an office refurbishment) may have a tax exemption, but

    again you should consult your local Tax Inspector.

An important point is that a number of measures which are not exempt from tax and NICs may

    be sufficiently insubstantial that a Tax Inspector would not in practice charge tax on the benefit,

    because the cost of collecting the tax is disproportionate to the tax due. What constitutes

    ‘insubstantial’ is left to the common sense of each Tax Inspector. So, if you are offering a

    benefit that does not have a specific exemption, but seems small in value and does not displace

    an employee’s normal spend, then it is very worthwhile to check with your local Tax Inspector.

Other taxable measures

    A number of Travel Plan measures remain in the tax net. These include:

    ? Payments to give up car parking rights.

    ? Vanpools

    ? Any other substantial or regular cash incentives. However, this does not include prize

    draws linked to Travel Plan participation that, within reason, would be viewed as an

    ‘insubstantial benefit’.

     4

Package and Voucher/Points schemes

    If you operate a package scheme (using vouchers, points or ‘Green Miles’ that can be spent on

    commuting costs), it is best to have a package of exempt and agreed insubstantial benefits, and

    keep any taxable ones separate and distinct. Employees could be taxable on the whole package

    if there is a mix of taxable and tax exempt measures.

Through a points scheme you can provide incentives on non-exempt measures if designed

    correctly. For example, parking cash-out is taxable. Points should only be redeemable on

    exempt public transport arrangements, cycle benefits, meals, etc. as described above. Note that

    no cash element is permitted, so vouchers or points should not be redeemable as cash in any

    way.

Business travel

    Business travel is a totally different tax situation because this is part of a person’s job and so

    has always been tax exempt, unless limits are passed such as the maximum ‘mileage rate’ for using cars. Some recent changes now favour a ‘greening’ of business travel, which could form part of a Travel Plan. These include:

     1? Single 40p a mile private car mileage rate up to 10,000 miles (25p a mile thereafter).

    ? 20p a mile cycle mileage rate.

    ? 5p a mile per car passenger rate (in addition to driver’s rate).

Linking a Travel Plan to restructuring mileage rates and promoting the car passenger rate can

    produce big savings to an organisation. Some now offer a lower basic mileage rate for business

    travel in order to offer a high driver rate if a colleague is taken as a passenger in addition to the

    5p a mile passenger rate.

Tax information and advice

    With care, many Travel Plan measures can be provided tax-free. The main areas where tax

    remains an issue are employer subsidies to non-bus public transport fares, parking cash out and

    bicycle maintenance. If you feel the tax position of a Travel Plan measure is unclear then do

    consult your local Tax Office.

There is a short ‘green travel’ factsheet on the HM Revenue & Customs website:

    http://www.hmrc.gov.uk/green-transport/travel-plans.htm

    (accessed 19.9.07)

Full details on the tax position of travel benefits are found in the annually-updated booklet

    Expenses and Benefits: A Tax Guide. This contains all tax exemptions, but you can search this electronically. It is available from http://www.hmrc.gov.uk/guidance/480.pdf (accessed, 19.9.07)

     1 The Government are currently looking into these mileage rates and changes may be made in the 2008 Budget.

     5

The DfT Cycle to Work Implementation Guidance is on the cycling part of the Department for

    Transport website, downloadable from:

    http://www.dft.gov.uk/pgr/sustainable/cycling/cycletoworkschemeimplementat5732 (accessed 19.9.07)

    Motivcom’s scheme utilising the bus pass salary sacrifice system is detailed at: http://www.pmmemployeebenefits.co.uk/green.html

    (accessed 19.9.07)

Finally, you should check with your local HM Revenue & Customs Office if in doubt about the

    tax position when developing a Travel Plan measure.

     6

Report this document

For any questions or suggestions please email
cust-service@docsford.com