The expansion of London’s Ultra Low Emission Zone (ULEZ) has focused attention on the business use of cars and whether clean air charges are tax-deductible.
As well as London, ULEZ charges for non-compliant cars are imposed in Bristol and Birmingham, and there are clean air zones with differing rules in a few other cities in England and Scotland.
For self-employed people, a ULEZ charge is tax-deductible provided the cost has been incurred wholly and exclusively for business purposes. That does not include from home-to-work travel unless the business is run from home, or home is the principal or only workplace.
A difficulty may arise because the ULEZ is a fixed charge that arises on a daily basis. A person living in or near a ULEZ zone may make more than one journey in a day, of which some but not all are wholly and exclusively for business. You should keep a record of your travel for any day in which you plan to claim the charge against your tax.
Employees can receive tax-free reimbursement of ULEZ charges incurred wholly, exclusively and necessarily in the performance of their employment. This can be paid in addition to the standard mileage rates for employees using their own car for work.
Electric incentives
Most company cars will be ULEZ compliant as it is generally only petrol cars registered before 2005 and diesel cars registered before 2015 that do not meet the standards. But where companies are looking to replace cars, it is worth considering going electric, as there are some useful tax incentives:
- The company car tax rate for fully electric cars is 2%, rising gradually to 5% in 2027/28. This is far lower than for petrol and diesel cars. For hybrids the rate depends on the electric range, but there is still a significant saving.
- There can be no fuel benefit because HMRC does not class electricity as a fuel.
- Paying for a charging point to be installed at an employee’s home does not give rise to a taxable benefit if the employee has a company car.
- The advisory fuel rate for fully electric company cars has been increased to 10p per business mile. Where an employee uses their own electric car for business, the mileage rates (45p for the first 10,000 miles, then 25p) are the same as for other cars.
- For businesses, electric vehicles qualify for a 100% first-year allowance, as does the installation of a charging point.