Let us imagine that I make two business trips into the controlled zone a week but my normal place of work is elsewhere, outside of that zone. My employer will probably buy me a 'permit' that allows a specific number of entries and by the magic of computers and cameras, each visit is recorded and logged. The permit cost is connected to the business journey and so it is allowable – or is it?
What if I combine business with pleasure and bring my wife with me into London. I visit a client, she goes shopping, and in the evening we go to the theatre. Will I be liable to tax and National Insurance on the cost of the permit?
The Inland Revenue usually looks at the primary purpose of the journey, and, as I was coming into London anyway to see a client, the trip is for business and there is no extra cost in allowing me to stay into the evening.
As a result, the marginal cost rules apply and no tax charge would be applied. What if the situation changes and the client meeting is cancelled but I still use the permit to come into London just to go to the theatre.
In this case the cost of the congestion charge becomes a private benefit and must be declared. I will have to pay tax and National Insurance on the permit value. So the more creative among you may think, 'Simple, I will base all my calls into London around my social diary.' But please beware!
The Inland Revenue will be looking out for artificial or unnecessary business trips that have been simply tagged on to a social trip to have the costs allowed. You must also be careful if you usually commute into London. Even where the journey is to a client, if that journey is substantially the same as your normal commuting journey, its cost will not be allowable as a business journey. The congestion permit will follow the same rule and be taxable where paid for by the employer.
As a rule of thumb, a journey that partly follows the same route as your commuting journey will be substantially the same, unless it is 10 miles or more longer than that journey.
For London that 10 mile distance may be able to be shortened if agreed by the Inland Revenue, ironically due to the congestion! It may be possible, instead of daily permits, to buy something like the current train season ticket – a fixed charge based on a time period rather than the number of journeys.
If this becomes possible then the primary purpose of an employer-provided permit again becomes important.
If the special permit can be used for private journeys as well as business ones, ie a dual purpose, the full cost is likely to be taxable.
If, however, the special permit is restricted to use for business trips only, and the Inland Revenue accepts that those restrictions are going to be effective, then there should not be a tax or National Insurance cost. Remember that it is the primary purpose of each trip in these cases that is important.
Where you work in London, an alternative situation could be where your employer pays for parking outside the congestion charge perimeter. If you work near this perimeter then the employer's cost will not be a benefit under current legislation since employer facilitated parking is not taxable if it is located at or near the normal work place.
Where the work place is situated further in towards the centre of London, however, the cost to the employer will be taxable and National Insurance will also be due. The Inland Revenue does not expect a rigid approach to be taken by its officers and expects 'at or near' to be interpreted as 'within a reasonable distance from the place of work'.
All in all, employers are going to have to take care that, if they pay for permits to get into London, they must be able to demonstrate a primary business purpose if they wish to avoid conveying a benefit on to the employee.'
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