EIM21680 | Particular benefits: the congestion or clean air zone charge

The congestion charge was introduced in London on 17 February 2003. Charges apply if a motor vehicle is used or kept on a road in the charging zone during the hours in which the scheme operates. Almost all vehicles are liable to pay the congestion charge if they are driven or parked on a public road in the zone. (But there are some specific exemptions and discounts available to certain categories of vehicles and individuals).

Some local authorities have introduced clean air zones. If a motor vehicle exceeds certain emission standards, a charge will be due if that vehicle is driven within the charging zone whilst the scheme is in operation. References in this guidance to the clean air zone charge also include Ultra Low Emission Zone charges.

Congestion or clean air zone charge paid or reimbursed by an employer

If an employer pays the congestion or clean air zone charge (or reimburses the employee for payment), the tax treatment of the payment or reimbursement varies according to who was liable, or potentially liable, for the charge. For instance:

• if the charge is incurred by a vehicle registered solely in the employer’s name, and the employer pays the charge (or reimburses the employee for payment), there are no tax consequences for the employee, but

• if the charge is incurred by a private vehicle registered in the employee’s name, but the employer pays the charge direct to the relevant authority, the pecuniary liability principle applies (see EIM00580) and there is a tax charge under Section 62 ITEPA 2003 unless the payment is made in advance of the charge being incurred. Where direct payment is made in advance of the charge being incurred, the amount of the payment is a benefit to the employee within the scope of Section 201 ITEPA 2003. Reimbursements will be taxed as earnings within Section 62 or as expense payments within Section 70.

Relief may be available where the charge is incurred by a private vehicle registered in the employee’s name whilst travelling on a business journey, see EIM31820.

If the charge is not paid by the specified time limit, a late payment surcharge is imposed. This additional amount is treated for tax in the same way as the basic charge, if the employer meets the cost or reimburses the employee for payment.

Penalty for non-payment of the congestion or clean air zone charge

If the congestion or clean air zone charge and surcharge are not paid by the relevant deadline, the authorities may issue a penalty charge notice.

If an employer pays the penalty (or reimburses an employee for payment) the tax treatment of the payment or reimbursement depends on who was liable for the penalty. For instance:

• if the penalty is incurred by a vehicle registered solely in an employer’s name, and the employer pays (or reimburses the employee for payment) there are no tax consequences for the employee

• if the penalty is incurred by a vehicle registered in the employee’s name, but the employer pays the fine direct to the relevant authority the employer settles a personal debt of the employee. The pecuniary liability principle applies (see EIM00580) and there is a tax charge under Section 62 ITEPA 2003. Cash reimbursements will also be taxed as earnings within Section 62 or as expense payments within Section 70.

No relief is available for penalty charges.