The UK is taking significant steps towards a cleaner and greener future by implementing clean air charges in various cities, including the newly expanded Ultra Low Emission Zone charge (ULEZ) in London. These measures are designed to reduce emissions and improve air quality. While these charges may seem like an additional burden, there’s good news for self-employed and employed drivers – you may be entitled to claim tax relief on these clean air charges, provided you are undertaking qualifying business travel when incurring these expenses.
Understanding ULEZ Charges
Starting from 29 August 2023, the ULEZ charges will apply to all London boroughs at a rate of £12.50 per day. Vehicles that are non-compliant and need to pay the ULEZ fee include:
Petrol cars and vans that do not meet Euro 4 standards (typically vehicles manufactured and registered with the DVLA before 2005).
Diesel cars and vans that do not meet Euro 6 standards (broadly equivalent to vehicles registered before 2015).
Motorbikes that do not meet Euro 3 standards (broadly equivalent to bikes registered before 2007).
Tax Relief for Self-Employed Drivers
Self-employed sole traders and partners have the opportunity to claim tax relief on business travel expenses, which would include low emission zone charges. However, there are specific criteria that must be met:
Wholly and Exclusively for Business: The travel expenses must have been incurred wholly and exclusively for the purposes of your trade.
Business Travel Definition: Business travel includes journeys to and from customers or suppliers and to and from a workplace. For self-employed individuals, home-to-work travel generally doesn’t qualify as a business journey unless:a. Home is the main or only workplace or the operating base of the business.
b. The trade or profession is a traveling occupation, or the nature of the trade is itinerant, and the business base radiates around the home.
Tax Relief for Employed Drivers
Employees, on the other hand, must meet additional criteria for tax relief to be available. The expenses incurred must have been wholly, exclusively, and necessarily in the performance of their employment. Here are some key points:
Commuting: Home-to-work travel (commuting) is generally not allowed for employees unless the work qualifies as a temporary workplace or in certain limited circumstances where the travel takes place after 9 pm.
Temporary Workplace: A temporary workplace is defined as one that an employee visits for a limited or temporary purpose, for a duration of less than 24 months, subject to certain conditions.
Reimbursement by Employers: Employers have the option to reimburse their employees for all their travel costs when they are traveling in the performance of their employment duties.
Claiming on Tax Return: If your employer does not reimburse you for travel costs, in most cases, you can make a claim for tax purposes on your tax return to deduct your travel expenses from your employment income.
Considering Tax-Friendly Options
As more regions adopt clean air charges similar to the ULEZ, and as the cost of petrol and diesel continues to rise, both self-employed individuals and employees may want to explore tax-efficient alternatives. Here are a few considerations:
Ultra-Low Emission and Electric Vehicles: Employers can take advantage of the beneficial tax rules that apply to Ultra-low emission vehicles or Electric vehicles by providing a Company car along with allowable travel expenses.
Tax-Free Benefits: Tax-free benefits are also available in connection with company cars, including workplace charging facilities for electric vehicles, car parking at or near the employee’s place of employment, personalized number plates, and security-enhanced features if the nature of the employment creates a threat to personal security.
Conclusion
Clean air charges are becoming more prevalent in the UK, and it’s essential for self-employed and employed drivers to understand their options when it comes to tax relief and tax-efficient transportation choices. By staying informed and making the most of available tax benefits, you can navigate these changes while contributing to a cleaner and greener environment. Remember to consult with a tax professional for personalized advice based on your specific circumstances.
If you have questions or need to understand what expenses you can claim, get in touch, we are here to help.
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