Ulez expansion: Breaking down the tax implicationsby
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?
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.
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Ian Holloway is a highly respected payroll practitioner, writer, advisor and trainer and has worked in the payroll profession for over 30 years. Ian has hands-on experience processing payrolls from all sectors, large and small.
In 2011 he shifted focus to his passion for educating the profession, and also worked on improving Payroll...