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An employer may operate a works bus service to carry employees to and from work and to take them on lunchtime shopping trips without the employees incurring a tax charge if the defined conditions are met. The statutory provisions are set out in section 242 of the Income Tax (Earnings and Pensions) Act 2003 and in the Income Tax (Exemption of Minor Benefits) Regulations 2002. The principal objective of the legislation is to reduce the use of cars for commuting journeys.
Works bus services
For the tax exemption to apply, the journeys to and from work must be "qualifying journeys". There are four conditions that must be met.
- The service must be generally available to all employees. If the bus service is provided by a number of employers jointly, the service must be available to all of their employees. If only a select group of employees have the opportunity to use the service, it is fully reportable as a taxable benefit.
- The service must be used only by the employees for whom it is provided, or for their children, or substantially by just those employees and their children. Employees may, therefore, be accompanied by their children (under age 18), perhaps in order for them to attend a works nursery or school. The service may also be made available to the public, as long as the majority of those using it are employees of the employer(s) providing it.
- The whole or part of the journey must be between the employee's home and workplace, or between one workplace and another workplace, in connection with the performance of the employment duties. The expression "part of a journey" allows the service to start or end at pick-up points rather than outside the employees' homes - allowing the employee's car to be used for the first part of the journey. However, employees would receive a taxable benefit if they were to use the service on their days off.
- The vehicle used to provide the service must be either a bus with seating for 12 or more passengers (i.e. 13 or more including the driver), or a minibus with a seating capacity of 9 or more. The seating capacity of a minibus is defined in its registration document.
The exemption applies whether the employer owns the bus itself or hires it on contract from a bus operator. However, the exemption relates to the bus service, not to the bus itself. If an employer provides a works bus service but also uses the bus to take employees on a works outing, the works bus service is exempt but the outing is a taxable benefit.
The exemption also applies if access to the bus service is provided by means of non-cash vouchers, e.g. tickets or tokens.
Shopping trips in works buses
If one or more employers provide a works bus service, they may also provide shopping trips using a works bus. The exemption is principally aimed at employees who work at out of town centre locations in order for them to go shopping in the middle of the working day. The exemption does not preclude the provision of such a service at other times of the day.
It must be understood that this is not a standalone tax exemption. The employer must already provide a works bus service that meets all of the conditions listed above. The objective of this extension to the works bus service is to make it unnecessary for employees to bring their cars to work. If an employer provides a lunchtime bus service but not a works bus service, the lunchtime service is a fully reportable taxable benefit.
For the tax exemption to apply, the shopping trips must be "qualifying journeys". In addition to all of the conditions that apply for the works bus service, including the requirement for the service to be generally available to all employees, the shopping journey must be between the workplace and shops or other amenities, a distance of no more than 10 miles (i.e. a round trip of not more than 20 miles), and be made on a working day. The inclusion of "other amenities" would allow the service to be used to get to a health centre, for example. As with the works bus service, tickets or tokens may be used to obtain the shopping trip service. However, use of the service on a non-working day would be a taxable benefit.
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