For any employee earning more than £8,500 per year nearly all expense payments or benefits that are received from their employment are taxable. There is no general exemption for disabled employees but there are some relaxations to the rules and a few exemptions which should be considered.
1. Equipment services and facilities generally
Normally where an employer provides equipment or services to an employee for personal as well as business use, a taxable benefit will arise. However, if an employee is disabled, there is no tax on any equipment, services or facilities the employer makes available to enable them to take up or stay in work, even if there is substantial private use. However, this is subject to the following conditions:
- similar benefits must be made available to all disabled employees;
- the main purpose of providing it must be to enable the employee to do their work;
- either the benefit is be one that the employer must offer under the terms of the Disability Discrimination Act (DDA) 1995 or similar legislation, or is provided under the Access to Work programme.
Note also that this exemption only applies where the employer or a third party meets the cost. Disabled employees cannot claim a tax deduction for costs they bear themselves and are not reimbursed by their employer.
Full details of this exemption can be found on the HMRC website.
2. Home to work travel
There are strict rules which ensure that the costs of travel between home and work cannot be claimed as an allowable expense. If an employer pays or reimburses the cost then this amount becomes a taxable payment. However, no income tax or national insurance contributions (for either the employer or the employee) is payable if transport is provided between home and work for a disabled employee, or if the employer pays for such transport or reimburses the expense incurred.
The definition of disability for this purpose uses that in the DDA 1995 of 'a physical or mental impairment which has a substantial and long-term adverse effect on his ability to carry out normal day-to-day activities.'
This exemption does not cover the provision of a car which is subject to other rules.
Note that again disabled employees cannot claim a tax deduction for costs they bear themselves and are not reimbursed by the employer.
3. Provision of cars and fuel
There are special rules covering the taxable benefit where an employee has both business and private use of a company car and also where fuel is provided for both business and private motoring. These have been adapted to reduce the tax charged for a disabled employee.
The circumstances in which a disabled employee is not taxed if the employer provides a car or fuel, or pays or reimburses any related expense are where:
- the car is specially adapted for the employee’s use, or fitted with automatic transmission because the employee cannot use a manual gearbox, and
- the employee uses the car only for business travel or for ordinary commuting between home and work.
The definition of disability for this purpose again uses that in the DDA 1995 as given above.
However, this exemption is highly restrictive as it prohibits any private use of the car. Whilst the car benefit charge cannot be avoided if there is to be any private use of the vehicle, the fuel charge can be mitigated by the disabled employee paying for all private fuel other than for travel between home and work and training courses (which are allowed to be counted as business miles).
Specific rules for calculating company car benefit for disabled employees
In order to calculate any car benefit charge you need to know:
- the list price of the car at the date of registration;
- the cost of any accessories fitted to the car initially and added later; and
- the CO2 emission of the vehicle.
Adjustments can however be made to these figures before any tax charge is calculated where a disabled employee uses the car. The possible adjustments are as follows.
List price
From 2009/10 onwards the list price of the car to which the emissions figure is applied can be that for an equivalent manual version of the car if the disabled person must use an automatic version because of their disability. To qualify the disabled person has to hold a disabled person’s badge.
Accessories
Any special equipment designed to enable a disabled person to use a company car is exempt from tax if provided by an employer.
Any accessory which is designed solely for use by a chronically sick or disabled person can be ignored.
Additionally, certain other accessories can be ignored where they:
a) are included in a car provided to an employee who holds a disabled person's badge when the car is first made available, and
b) are made available for use with the car because that equipment enables the employee to use the car despite the disability entitling him or her to hold the badge.
CO2 emissions
In calculating the CO2 emissions figure where the car has an automatic engine the data for the equivalent manual version can be used, but only where the disabled employee must use an automatic version because of their disability. To qualify for this reduction the disabled person normally has to hold a disabled person’s badge.
4. Sundry minor reliefs
Termination payments
When employment ends often a final payment is made to the employee, which includes compensation payments or payment in lieu of notice. To the extent that any payments do not count as taxable earnings and are under £30,000 they are exempt from tax. A payment or benefit provided in respect of a disability of an employee will also not be taxable. However the payment must be made on account of the disability and for no other reason.
Use the link to see examples of what HMRC mean by ‘on account of’.
Overseas business travel
By concession directors and higher paid employees who require their spouse or partner to travel with them because of ‘precarious health’ are not liable to tax on the travelling costs of taking the spouse or partner with them on business trips.
Note that ‘precarious health’ is interpreted by HMRC as the person’s health being so poor that it is unreasonable to expect them to travel on their own.
LITRG
September 2010
