Tax tip: ULEZ costs

The spread of ultra-low emissions zones (ULEZ) throughout a number of UK cities means that more employers (and in some cases employees) have to consider whether these ULEZ costs can be reimbursed on a tax-free basis. Sadly the issue is not expressly addressed in HMRC’s Employment Income Manual which is a useful guide as to how HMRC considers this type of issue.

However the good news is that employers should typically be able to pay this type of expense claim on a tax-free basis. Indeed this assumption is ‘backed-up’ by HMRC’s historical guidance on the London congestion charge where it has confirmed that it is happy ‘in principle’ for employers to reimburse the congestion charge to employees on a tax-free basis where this satisfies the ‘wholly exclusively and necessary’ conditions in ITEPA 2003 (eg s 336 to s 338).

Nonetheless it...