Policy paper

Changes to the Income Tax and National Insurance contributions treatment of emergency vehicles

Published 6 July 2018

Who is likely to be affected

Emergency services staff who are provided with emergency vehicles for private use and their employers.

General description of the measure

This measure introduces legislation to:

• extend the scope of the current exemption for emergency vehicles to cover all commuting journeys
• introduce transitional arrangements for the taxation of emergency vehicles under the ‘use of assets’ legislation to provide more beneficial arrangements for the period 6 April 2017 to 5 April 2020
• allow the cost of fuel to be excluded from the calculation of additional expenses when the employer has not provided any fuel for private use, the cost of fuel for any private mileage has been made good in full, or any reimbursement by the employer is only for fuel used for business mileage

Policy objective

This measure ensures that a small number of employees in the emergency services will not face an immediate, significantly increased taxable benefit charge for the private use of their emergency vehicle following changes to the ‘use of assets’ legislation in Finance Act 2017.

It will allow further time for them to unwind existing contractual arrangements before they are affected by the rule changes.

Extending the scope of the existing emergency vehicles exemption may mean that fewer users of emergency vehicles are subject to charge under the use of assets rules.

Although ordinary commuting is typically considered a private expense, extending the ‘on-call’ exemption to allow for ordinary commuting in an emergency vehicle is designed to aid the provision of vital public services.

This recognises that the emergency services require flexibility to maintain fast response times, and ensures that a tax charge will not discourage employees from taking vehicles home

Background to the measure

Case law has determined that unmarked emergency vehicles fitted with flashing blue lights, which are made available for private use, are not chargeable to tax under the car benefit legislation in Chapter 6 of Part 3 Income Tax (Earnings and Pensions) Act 2003 (ITEPA), but instead under the use of assets provisions in Chapter 10 of Part 3.

There is an existing exemption in Part 4 of ITEPA for emergency vehicles if the only private use is for on-call commuting or for private journeys made while on-call.

The ‘use of assets’ legislation was amended in Finance Act 2017 with the intention of broadly reflecting in statute long-standing practice. The changes set out rules for calculating the value of the benefit. Draft legislation was published in December 2016 for technical consultation.

During consultation there was no indication that a number of emergency service staff were using emergency vehicles for private use in a way that meant the relevant exemption did not apply. As a result of the changes to the legislation, some individuals faced a significant increase in the taxable value of the benefit.

Following a number of representations made after the introduction of the changes to ‘use of assets’ legislation, the government decided to amend the law to support the work of the emergency services. There have been no previous announcements of these changes.

Further draft legislation was published for consultation on 6 July 2018.

Detailed proposal

Operative date

The legislative changes introduced by the measure will apply retrospectively from 6 April 2017. The transitional arrangements for emergency vehicles will expire after 5 April 2020.

Current law

The current provisions for calculating the cash equivalent of an asset made available for an employee’s private use are set out in Chapter 10 of Part 3 of ITEPA. The exemption regarding the use of an emergency vehicle is set out in Chapter 3 of Part 4 of ITEPA.

Proposed revisions

Legislation for Income Tax will be introduced in Finance Bill 2018-19 which:

• introduces transitional arrangements for calculating the income tax payable on the benefit of an emergency vehicle made available for private use for the period 6 April 2017 to 5 April 2020 - these will allow the cash equivalent of the benefit to be calculated on the proportion of the ratio of total to non-business miles travelled in the relevant tax year
• amends section 205 of ITEPA 2003 to ensure that fuel provided for the emergency vehicle is not treated as an additional expense, under certain circumstances where:
  • the employer has provided fuel for business use only
  • the employer has provided fuel for private use and the employee has made good the cost of any private fuel expense in full before 6 July following the end of the relevant tax year
  • the employee has paid for the fuel themselves and only had the business expense reimbursed
• will be applied retrospectively to the beginning of the tax year 2017 to 2018
• amends section 248A of ITEPA 2003 to extend the exemption so that it can apply where the vehicle is used for ordinary commuting as well as on-call commuting and for private journeys made while on-call - this will also apply retrospectively from the beginning of the 2017 to 2018 tax year

The benefit is subject to Class 1A National Insurance contributions and no changes to National Insurance contributions legislation are required.

Summary of impacts

Exchequer impact (£m)

2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023
negligible	negligible	negligible	negligible	negligible	negligble

This measure is expected to have negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure will benefit individuals working for the emergency services, as it extends the exemption for those individuals who have modest private usage of emergency vehicles.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

These changes will impact those sharing protected characteristics which are representative of employees who are provided with an emergency vehicle made available for private use. There are more likely to be in working age groups.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on employers. Negligible one-off costs include familiarisation with the new rules. It is not expected that there will be any on-going costs.

There is no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

Negligible - guidance changes will be required.

As the legislation is being made retrospective, by virtue of its powers of collection and management, HMRC will not be collecting tax that would otherwise be due under the Finance Act 2017 changes.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change contact the Employment Income Team at email: employmentincome.policy@hmrc.gsi.gov.uk.