Memorandum by the Board of the Inland
Revenue (IT 177)
INTEGRATED TRANSPORT AND TAX MEASURES
1. In its evidence to the Committee, Transport
2000 stated that the current tax situation "hinders or actively
works against" the adoption by employers of green transport
plans, because most measures are treated as taxable benefits in
kind. What is the Inland Revenue's response to criticism that
its current position is discouraging the adoption by employers
of such plans?
The general position in tax law, subject to
specified exceptions, is that benefits in kind which employers
provide to their employees, whether "green transport"
or other types of benefit, are taxable. The Revenue's duty this
to apply the law as it stands; the Department cannot apply the
law selectively depending on whether the benefits concerned are
green transport measures or not.
In the green transport context, it may be helpful
to mention that tax law provides an exemption from the tax charge
on benefits for loans which an employer makes to employees on
preferential terms, provided the total amount of outstanding loan(s)
to an individual employee does not exceed £5,000. This exemption
is often used by employers to offer interest-free or low interst
loans to employees to enable them to but their home-to-work public
transport season tickets.
2. Is it the case that the Inland Revenue has
recently imposed a stricter tax treatment of measures by employers,
such as the provision fo works bus services, and that employers
are facing large bills for tax and that it is making requests
for detailed travel diaries to assess individual liability? The
Boots company, for example, has advised the Committee that it
has been presented with an estimate for its tax lability for supporting
a public bus service used by its employees, dating back over six
years, of £500,000.
Where an employer pays for the provision of
a bus service to bring employees to work, the cost of that provision
will generally be a taxable employee benefit. There has been no
recent change in the law in this respect, nor have we issued any
instructions to our staff to impose stricter tax treatment on
this benefit than on others. As explained below, the Revenue,
may, of course, ask for information from employers to help establish
an employee's liability to tax.
Employers are under a statutory duty to notify
the Revenue of benefits in kind they provide to their employees.
Sometimes however, the provision of a benefit by an employer to
employees may, inadvertently, not be reported to the Revenue by
the employer. If a benefit subsequently comes to the attention
of the tax officer, or of our audit staffwho check that
employers are correctly operating PAYE on their employees' pay
and are reporting taxable benefitsa tax charge, which may
be signficant if the benefit has not been taxed over a period
of years, can arise.
Where an employer-provided benefit is identified
the Revenue may ask for information to establish the extent of
which individual's use of the benefit facility to decide on the
amount on which he or she should be taxable. This may involve
the need to distinguish between benefits which relate to journeys
which an employee makes in carrying out his work dutieswhere
the law provides tax relief which effectively removes the tax
change on the benefitand other journeys which do nto qualify
In relation to the particular example given,
the Revenue cannot comment on affairs of individual employees
3. Green Transport plan measures have been described
as falling into a grey area between being viewed as "negligible"
and "significant" benefits by local tax inspectors.
What is being done to ensure that tax treatment of such measures
is applied consistently by the different tax offices?
Whether a benefit is regarded as "negligible"
or "signficant" generally depends on factors such as
the number of employee beneficiaries and the cost to the employer
of providing the benefit. But there will also, inevitably, be
a subjective element. Tax law does not however allow a different
approach to be taken in relation to smaller benefits than for
larger benefits. The Department's aim, here as elsewhere, is to
collect no more than the right amount of tax due under the law.
We do our best to ensure the consistent application of national
tax system. All tax inspectors receive the same instructions and
guidance, including on employee benefits; and guidance is reviewed
regularly and renewed or revised as necessary.
4. What is being done to reduce the complexity
of administering the tax implications of green travel plan measures?
The degree of administrative complexity associated
with calculating tax on benefits provided under green transport
plans will depend, as elsewhere, on the nature and extent of the
benefits provided. But we accept that determining the extent of
the individual benefit for each employee can sometimes be complicated;
one example in the transport area is where an employer provides
a bus service potentially covering a large number of employees
who use the service to an extent which varies and can change over
It was to help simplify this sort of situation,
amongst others, that in 1996 the Government introduced legislation
to allow employers to make "PAYE Settlement Agreements"
(PSAs) with their Tax Inspector. Under a PSA, the employer undertakes
to meet the employees' tax liability on specificied benefits in
kind or expenses; this means that the employee neither has to
calculate each employee's share of the benefit or expenses, or
make an individual report of it to the Revenue; and that employees
do not have to declare the benefit or expense to their tax office
or pay tax on it. The employer makes a single settlement of the
total tax due to the Inspector of Taxes some months after the
end of the tax year. (The payment by the employer of an employee's
tax liability is itself a taxable benefit, so the amount of the
tax due has to be increased ("grossed up") to reflect
the tax liability on the payment.)
The PSA scheme cannot always be used to replace
the normal arrangements under which the employee who receives
benefits is responsible for paying the tax on them. But it does
provide a simpler administrative way of taxing certain benefits,
for example where valuing and apportioning the benefit among many
employees would involve severe complexity; in particular it could
be used to cover the benefit arising from a bus service subsidised
by an employer to take employees to and from work.
5. In order to reduce the administrative complexity
of green travel plans to encourage their adoption more generally,
it has been suggested that a de minimis tax exemption of up to
£500 for green travel benefits be provided. What assessment
has the Inland Revenue made of the effects of granting such an
exemption? How much of an incentive would such an exemption be
for increasing the number of employers that have green travel
Any proposal to change the law to provide a
de minimis tax exemption of up to £500 per person for green
travel benefits would be for Treasury Ministers to consider. We
are not aware of research which has clearly established what the
effect of such an exemption would be, for example in increasing
the number of employers who have green transport plans. But in
terms of Exchequer cost, for illustrative purposes, if 1 million
employees received the benefit of a £500 tax deduction for
green travel the annual cost at the basic rate of tax would be
6. In the White Paper, the Government indicated
(paragraph 4.13.1) that it would be undertaking research into
whether changes to the tax system, amongst other factors, could
promote green travel plans. Is the Inland Revenue participating
in this research and, if so, what progress has been made? What
preliminary advice would the Inland Revenue give to the Government
on this matter?
Inland Revenue officials have discussed the
effect of the current tax rules with officials from the Department
of Environment, Transport and the Regions who are taking the lead
in carrying out the research referred to in the Integrated Transport
White Paper. Revenue officials also had discussions with Dr Stephen
Potter during the preparation of his Open University report on
"Tax and Green Transport Plans" sponsored by London
Transport and published in September 1998.
The Committee will understand that any tax policy
adivice given by Revenue officials to Treasury Ministers is confidential.
7. By contrast with reports of the tightening
up of the Inland Revenue's tax treatment of green travel benefits,
workplace parking was exempted from taxation as a benefit in kind
in the 1988 Budget. This step was taken because it was thought
that assessing liability was too complex for employers and the
Inland Revenue. Does the Inland Revenue see any inconsistencies
in its approach to the taxation of workplace parking and green
travel measures, and what is it doing to address them? Would it
agree that it current position on this issue will make it more
difficult to achieve the aims of the White Paper? What plans has
the Inland Revenue for re-appraising the possibility of taxing
workplace parking in view of the changes in transport policy since
The exemption from tax of the benefit of workplace
parking for employees was introduced by the then Government in
1988 because of the exceptional administrative difficulties in
seeking to impose an income tax charge on this benefit. Instead
of trying to reinstate this income tax charge, with its accompanying
administrative problems, the Integrated Transport White Paper
proposes that local authorities should be given the power to impose
a local tax charge on employers in respect of workplace parking.
The question of further changes in tax law, for example to promote
green transport plans, would be a matter for Treasury Ministers.
8. Based on the market value of off-street parking
in central London, the Transport Committee for London has estimated
that a car parking space represents an untaxed benefit in kind
of up to £5,000 per annum. Approximately 70 per cent of those
who drive to work in central London are believed to have use of
a reserved free parking space. What is the loss to the Inland
Revenue of not taxing workplace parking in:
When the benefit of free workplace car parking
was exempted from income tax in 1988 the annual cost was estimated
to be around £5 million. This figure reflects, amongst other
things, the difficulties previously facing employers and the Revenue
in trying to tax the value of this benefit to individual employees.
The practical difficulties of seeking to establish the additional
cost to the employer of providing workplace car parking and the
extent of use, and therefore the benefit enjoyed, by individual
employees have not diminished since 1988. Even were it possible
to overcome them, the scale of the likely behavioural effects
resulting from trying to reimpose the tax charge, and the need
for a fair apportionment where use of a space is shared would
make it misleading to try to extrapolate the potential yield from
taxing workplace car parking on the basis proposed in the question.
9. Does the Inland Revenue have any plans for
changing the way in which company car mileage is taxed?
The Committee will be aware that in the March
1998 Budget, the Chancellor announced he would be considering,
in relation to income tax charged on company cars, the case for
replacing the existing business mileage discounts with discounts
for driving fewer private miles. Views were invited and since
then the Revenue has received a number of comments. Many are supportive
of the proposal, as business mileage discounts are seen as providing
an incentive to drive unnecessary, extra miles. Others are neutral
or even opposed to the change. Some have expressed concerns that
the proposal to give discounts for low private mileage would simply
shift private miles from company cars to private cars (as some
70 per cent of all company car drivers also have access to a second,
privately-owned car). That would not help reduce congestion or
pollution. There is also a concern that the proposals would mean
extra record keeping for company car drivers and their employers.
In the light of these comments, the Revenue
is continuing to review how the company car tax regime might be
altered to send better environmental signals. Despite what was
said in newspaper articles published towards the end of last year,
the review of company car taxation has not been abandoned. That
review is continuing and Treasury Ministers will not be taking
any decisions on the review until it has been completed.