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Signs indicating Ultra Low Emission Zone (ULEZ) on a street in London. ULEZ was introduced in 2019 to help improve air quality in the capital.
istock_Ulez_Alena Kravchenko

Ulez expansion: Breaking down the tax implications


The Ultra Low Emission Zone expanded in London on 29 August 2023 and was subject to much news coverage. Yet, looking beyond the headlines, have employers considered the make-up of their company vehicle fleets, to say nothing of reimbursing charges incurred?

31st Aug 2023
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Many a political discussion could be had about the expansion of the Ultra Low Emission Zone (Ulez) to all London boroughs, excluding the M25. I am not going there! Save to say that the scheme, introduced by Boris Johnson (Conservative) but implemented by the current Mayor of London (Labour), has resulted in a lot of misinformation and topics for employers to consider.

The Ulez scheme (Lez and Zez)

Employers need be aware that:

  • Ulez applies to petrol and diesel vehicles up to 3.5 tonnes that do not meet the ultra-low emissions standards. The scheme includes motorcycles. Different types of vehicles have different emission standards.
  • The Ulez scheme is not applicable to petrol and diesel vehicles over 3.5 tonnes - but the Low Emissions Zone (Lez) is, with different daily charges if the vehicle does not meet the low emissions standards.

(Note that plans for a central London Zero Emission Zone (ZEZ) from 2025 have been dropped, with City Hall saying their zero-emissions target by 2030 would be met in other ways).

The takeaway messages are the Ulez and Lez are different and not all vehicles are impacted, if emission standards are met. The RAC estimates, though, nearly 700,000 cars would be affected, so it is worth employers and individuals investigating the ‘check my vehicle’ part of the TfL website.

The acronyms Ulez and Lez are worth learning, as they represent schemes that exist elsewhere in the UK, maybe tweaked, yet the same considerations will apply for employers and individuals.  Employers need to consider:

  • Changing / adapting their vehicle fleet to meet low emission standards, and / or
  • The implications of reimbursing a charge

Changing or adapting the fleet

Employers are, mainly, looking at older vehicle fleets and some may not be impacted at all. The Transport for London (TfL) website has useful tips for meeting Ulez and Lez standards. Also look at the list of applicable discounts and exemptions; for example, emergency service vehicles, vehicles used by disabled people and London Taxis.

Perhaps, the tip ‘Go electric’ could have been higher in the list of possible options for employers (and individuals). Ulez and Lez are all about the reduction of vehicles emitting CO2 (and the air pollutants nitrogen dioxide [NOx] and fine particulate matter [PM]) and the all-important words ‘electric cars emit no NOx or CO2 from the tailpipe’ are almost lost in the text.  This is not, primarily, about fighting climate change; it is to do with air pollution.

Employers may also want to consider that HMRC has increased the advisory electricity rate to 10p per business mile from 1 September 2023. This applies to fully electric company cars. Whilst this is lower than the advisory fuel rates that apply for petrol, diesel or hybrid cars, 10p per business mile is a 100% increase from the reimbursement rate one year ago.  Also:

  • The company electric car appropriate percentages are much lower because they have zero or low CO2 emissions. The actual percentage does depend on the ‘electric mileage range’.
  • Electricity is not considered a fuel by HMRC meaning there is no fuel benefit to be considered (though there are other considerations with the provision of charging), and
  • The van scale charge only applies if the vehicle is capable of emitting CO2. A zero-emission van will not attract any benefit (and electricity is not a fuel, so no benefit there either).

I wonder if the reason the ‘go electric’ message appears far down the list is explained by the line: “We are working with partners to develop a network of rapid charging points in London to help you charge your vehicle quickly and efficiently.” There is little incentive promoting a “clean, green” fleet if employees can’t charge their vehicles!

Paying the charge and reimbursing

If the expense of the Ulez or Lez is incurred by the employee in the performance of their duties, any payment made for the actual cost will fall within the travel expenses ‘other incidental costs’ detailed in the income tax (Earnings and Pensions) Act 2003, covered in the Employment Income Manual.

Reimbursing Ulez or Lez costs incurred is no different from the employer reimbursing the cost of a congestion charge, car park cost or bridge toll fee, providing the cost has been incurred for business travel that the employee is required to do under their contract of employment. 

This is very different from, say, a ‘Ulez allowance’ an employer might choose to pay an employee if the costs are or may be incurred. HMRC refers to these as round sum allowances not directly in respect of costs actually incurred. Such allowances must be paid through the payroll for the calculation of income tax and Class 1 national insurance. If an employer chooses to reimburse a Ulez/Lez cost that is not the result of business travel, this would be a benefit.

In a similar way, someone who is self-employed will be eligible to claim tax relief on expenses incurred. Getting relief from paying income tax is not the same, though, as having the actual expense refunded or reimbursed.

It’s not only Ulez that has expanded. It’s the knock-on considerations for individuals and employers, now and in the future.

Replies (10)

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By Hugo Fair
31st Aug 2023 14:45

Interesting topic ... although, as hinted, a less London-centric approach is needed (preferably one that is applied consistently, rather than all these ridiculous devolved Heinz varieties which appear to be evolving in the dark and covered in ...)!

And thanks for a new fact (to me anyway) .. that the expansion of Ulez excludes the M25.
This must be a major relief to those with elderly cars who've worked out how to get those cars onto (and off) the M25 without crossing the penalty zone. :=)
Visions of people having their cars airlifted by helicopter so that they can start and finish their drive on a Ulez-free road!

Thanks (5)
Replying to Hugo Fair:
By NotAnAccountant2
01st Sep 2023 07:50

Hugo Fair wrote:

And thanks for a new fact (to me anyway) .. that the expansion of Ulez excludes the M25.
This must be a major relief to those with elderly cars who've worked out how to get those cars onto (and off) the M25 without crossing the penalty zone. :=)
Visions of people having their cars airlifted by helicopter so that they can start and finish their drive on a Ulez-free road!

I wasn't aware that any of the M25 was in London! Now that I look I see that London does touch the M25 in several places (No idea if these would count as "in London" or "out of London" for ULEZ without this exception) and the M25 does cross London out East in Havering.

But the M25 clockwise, M1, Dover to the North route only touches London near Heathrow. A scenic detour past Windsor castle would have avoided that bit :-)

I did wonder about the M25 anti-clockwise to M4 west interchange though. But I see that the sliproad crosses under the M25 before crossing the M4 so I guess it doesn't ever intrude into Hillingdon. And anyway:

The M4 is outside the ULEZ until junction 3. Beyond that going east, the M4 is inside the zone. The roundabout at junction 3 is outside the zone, but all exits apart from the M4 westbound are inside the zone.

So if you miss the M25 turnoff you get another chance to turn around at J3 and avoid the ULEZ

Thanks (0)
Replying to Hugo Fair:
By ireallyshouldknowthisbut
01st Sep 2023 14:13

Quite agree there needs to be a national system with one set of rules.

The rules in London are different to the ones in my local historic town, which to be fair you would not want to drive through anyway.

How on earth are you supposed to know what the system is in each location if you are (say) an auditor travelling across multiple sites in the UK in a vehicle which might be compliant in London due to an exemption, but not elsewhere.

Its very poor government on a national level. That and making this a party political issue which is just pathetic given many of the local council putting this in are Tory, and of course Boris is the one who set the wheels in motion on this one.

Thanks (3)
Replying to ireallyshouldknowthisbut:
By ireallyshouldknowthisbut
01st Sep 2023 14:22

Also add, people seem to be overlooking how nice cities with these in actually are to be in.

its transformed my local city in the centre which is all bikes and pedestrians and electric busses gliding about, and when I last went to London in the summer on a rare kids sightsee job, I was amazed how clean the air was in central london compare to when I used to go regularly 20 odd years ago when on a hot summers day in Parliament Square would have been thick with diesel fumes from the busses and taxis. The building all seemed to have been cleaned too. I guess if you lived there you wouldn't notice the difference as its incremental over many years. In my posh village in the sticks there seems to be a lot of electric cars now and the old noisy diesels are less frequent. Apart from when I get mine car can't be driven in london now, and probably fair enough.

Thanks (2)
Replying to ireallyshouldknowthisbut:
By vstrad
04th Sep 2023 14:41

There's the irony. The air in London is now less polluted than at any time since before the industrial revolution. Yet Mr Mayor thinks more action is required, even in the semi-rural, outer fringes.
Follow the money!

Thanks (0)
Replying to vstrad:
By keithas
04th Sep 2023 18:38

I have a friend who lives very close to Westway, A40, and during the rush hour the carbon monoxide alarms in his house go off.
Personally, I am more offended by backward steps like allowing sewage to be poured into our rivers and seas.
Unfortunately, I think the poor implementation of this policy has got it off to a bad start but, eventually, we will all accept it along with smoke free zones, lead free petrol and paint, tobacco smoke free buildings and all the other health advancing steps that have been taken over the decades. Many of these were heavily resisted at their inception but are now widely accepted as nothing but beneficial, especially for our children.

Thanks (3)
By listerramjet
01st Sep 2023 10:47

London is actually a very small part of the capital city. I think the term is "square mile"! The payroll implications are interesting of course, but the bigger picture is what this will do to employment in inner and outer London. Particularly given that the tube is both over capacity and somewhat troubled by air quality issues. Some other "cities" have chosen to jump in, and I suspect they will see an outward migration of business -even if their greed does not extend to £12.50 a day. Not to mention what it will do to the high street.

Thanks (0)
Replying to listerramjet:
By BrianL
01st Sep 2023 11:06

Not that it actually adds much to the ULEZ taxation discussion, but it is the City of London that is the "square mile". There are several definitions of London. (Typical of us!) See

Thanks (0)
By Buriedunder
01st Sep 2023 19:34

As I understand it, Heathrow itself is in the ULEZ zone which means that any unfortunate non compliant car picking up, delivering or parking at the airport will be hit. So anyone coming from far away will be hit and hit twice presumably if a return jouney is after midnight!

Thanks (0)
By Ian McTernan CTA
02nd Sep 2023 13:22

Note that plans for a central London Zero Emission Zone (ZEZ) from 2025 have been dropped

What scared me most about all this is that Khan even considered a 'zero emission zone'!!

No doubt something that will again rear it's ugly head if they remain in power.

Thanks (0)