Tax treatment of ULEZ charges
Tuesday 29 August 2023 marked the expansion of London’s Ultra Low Emission Zone (ULEZ). You will have struggled not have caught the news coverage! There are now two zones in London:
- The expanded ULEZ, applicable to petrol and diesel vehicles up to 3.5 tonnes including motorcycles. Importantly, this is where the vehicle does not meet the ultra-low emissions standards
- The Low Emissions Zone (LEZ) which applies to petrol and diesel vehicles over 3.5 tonnes (where the LEZ emission standards are not met)
The ULEZ and LEZ are a consideration for individuals and employers in two respects:
- Both schemes are about improving London’s air quality to encourage ‘greener’ vehicles. Though, not every individual or employer can afford to change their vehicle if it does not meet the ULEZ or LEZ standards, so
- What happens if employers reimburse a charge that is incurred and what about claiming this as an expense on a Self-Assessment return?
Think about car travel expenses that are already allowable such as parking fees, toll fees and congestion charges. These are all allowable for tax relief and ULEZ and LEZ charges are no different. If the employer reimburses a charge that has been incurred for business travel, there is no tax liability.
Similarly, for self-employed or sole-traders these charges are allowable as a deductible business expense when calculating their profits for tax at the end of the tax-year where they have been incurred for business travel.
Action for Taxpayers
The move is designed to encourage greener travel in London (and outside) and, maybe, this will signal a change of car fleets and personal vehicles in the longer term but this will certainly not happen overnight.
So, as with all motoring expenses, you are advised to think ‘business travel’:
- If the employer reimburses a charge actually incurred whilst performing business travel, there is no tax or National Insurance on the reimbursement. The full cost can be reimbursed
- If the employer does not reimburse the charge, or only reimburses part of it, the individual can claim tax relief via a Self-Assessment tax return. This will reduce the income on which they have to pay tax, so not the same as receiving a full reimbursement
If it is not business travel, this is not free of tax and needs to be declared on the P11D. If the employer chooses to pay an allowance that will cover the charge that may be incurred, this is treated as earnings and must be paid through the payroll.