As a general rule, where an employer pays for a taxi for an employee’s journey between home and work, there is a taxable benefit as journeys between home and work are regarded as private, rather than business, journeys.
However, depending on the circumstances, it might be possible to provide a taxi without triggering a tax liability.
Late night taxis
There is a specific tax exemption for the provision of late-night taxis home. However, as with all exemptions, it is only available if the associated conditions are met
There are four late working conditions, all of which must be met:
- the employee is required to work later than usual and until at least 9pm;
- this occurs irregularly;
- by the time that the employee ceases work, either public transport has ceased or it would not be reasonable to expect the employee to use public transport; and
- the transport home is provided by taxi or similar road transport.
Further, the provision of a tax-free taxi for late working and the failure of car sharing arrangements is capped at 60 occasions in the tax year.
Polly works in a patisserie. To ensure that they are able to complete a large order for a wedding, Polly works until 10pm. Her normal working hours are 9am to 5pm.
Working late to finish orders happens occasionally. As the bus that Polly normally takes to work does not run after 8.30pm, her employer pays for a taxi home. She has provided a taxi on three previous occasions in the tax year when Polly has worked late.
The conditions for the exemption are met and no tax liability arises as a result of the provision of the taxi.
Failure of car sharing arrangements
The tax exemption also applies if the employer provides an employee with a taxi home from work where the employee’s normal car sharing arrangements fail. The exemption is available where the employee regularly travels to work in a shared car with one or more employees employed by the same employer and, due to unforeseen circumstances, the car sharing arrangement is unavailable. This may happen, for example, if the driver is taken ill and has to leave work early.
The cap of 60 tax-free journeys in the year applies to taxis provided either because the employee works late or the car sharing arrangements fail.
A trivial benefit?
Depending on the circumstances, it may be possible to provide a tax home tax-free by taking advantage of the trivial benefits exemption where the exemption for late night taxis or failed car sharing arrangements is not available.
However, it should not be assumed that this exemption will apply automatically if the cost of the taxi fare is less than £50.
One of the conditions that must be met for the trivial benefits exemption to apply is that the benefit must not be provided in recognition of services provided by the employee. This condition will fail, for example, if an employer provides a taxi home because the employee has worked later than usual. So, for example, if an employee works until 8pm and the employer provides a taxi home, the late-night taxis exemption will not apply as the employee has not worked until 9pm and the trivial benefits exemption will not apply as the taxi is provided in return for working late. Thus, the benefit will be taxable.
However, if the employer provides a taxi home after, say, a department meal out, the trivial benefits exemption may be in point.