EIM21680 - Particular benefits: the congestion 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 (LPG and bi-fuel cars are exempt).

Congestion charge paid or reimbursed by an employer

If an employee drives or keeps a vehicle on a public road in the zone, a congestion charge is due. If an employer pays the 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 amount of the payment represents the employer meeting the employee’s pecuniary liability and is taxable as earnings under Section 62 ITEPA 2003. Reimbursements will be taxed as earnings within Section 62 or as expense payments within Section 70.

If the congestion charge is not paid by 10pm on the day the charge was incurred, 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 charge

If the congestion charge and surcharge are not paid by midnight on the day on which they were incurred, the authorities may issue a penalty 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.