SE31400 - Employees using cars or vans for work: exempt passenger payments
Section 197AE and Paragraph 5 Schedule 12AA ICTA 1988 as introduced by Section 57 and Schedule 12 FA 2001
From 6 April 2002, there is an exemption from tax for payments
made to employees on business journeys in cars or vans for carrying
qualifying passengers (fellow employees for whom the travel is also
business travel).
The key features of the exemption are:
- It is solely an exemption from tax, and not a relief - see SE31410.
- The employee whose car or van is used must be travelling on a business journey.
- The payments to be exempted must be specifically for carrying as passengers fellow employees for whom the journeys are also business travel (“business passengers”). There are two main aspects of this:
- If an employer pays a business travel mileage rate above the amount that qualifies for exemption under the approved mileage allowance payments (AMAPs) rules (see SE31250 onwards), and pays at this level whether or not the employee is carrying passengers, none of the excess can be covered by the passenger payments exemption on those occasions when the employee carries business passengers. For example, if the employer always pays 50p a mile, even when there are no passengers, the maximum tax free amount per business mile will still be the standard 40p a mile AMAPs rate, even for business journeys on which there are business passengers.
- The journey must also count as a business journey for each of the fellow employees for whom the payment is to be exempted. For example, the driver and 2 colleagues are all required to attend the same business meeting at a location away from the permanent workplace.
- The vehicle used must be a car or a van.
- Unlike the AMAPs rules, the passenger rate exemption can apply where the vehicle used is a company car or van, provided the employee is chargeable to tax on car or van benefit. Whether the vehicle is a company vehicle or privately owned, the only payments that qualify for the exemption are those specifically for carrying passengers.
- As this is an exemption from tax, there is no need for any dispensation. But employers should keep adequate records to demonstrate that payments made satisfy the conditions for exemption.
The exempt amount
Details of how to calculate the exempt amount, “the approved amount for passenger payments”, are at SE31405.
